The participation agreement document sets out the terms under which you (collectively) buy your freehold (enfranchise). The agreement deals with the terms and should be prepared by a competent solicitor. As a surveyor: my view is more practical with less legalese.

A surveyors involvement in the process varies as does its timing: it generally stems from a single leaseholder wanting to extend their lease, who then speaks with a neighbour; then another. Eventually someone mentions it is cheaper to act as one and mentions buying the freehold. Someone mentions the price (premium). A surveyor values the freehold.

It is rare in a building for all flats to be the same size, layout, aspect, condition and value. It is not unusual for the lease length and ground rent to be different. Aside from that, price is dictated to an extent by the number of participating tenants: if there are sufficient qualifying and participating tenants.

Pitfall

The common pitfall to the process is overall cost. This broadly falls under two categories: the premium (purchase price) and the fees. Where participants disband is after the valuation, and this can be due to the share of premium that can fluctuate depending on the variables of the parameters of the valuation.

Regardless of the number of participating tenants, the cost of obtaining advice generally is shared equally. If all leaseholders are participating, with leases subject to the same length and terms, flats broadly the same size and condition (unimproved) then make life simple and agree an equal split on all costs as there should be equal outcome.

Outside advice

If there is not consistency agree that your advisers arbitrate on share of the premium. If your advisers are collectively appointed, you should try to abide by their advice. Often an individual participant will ask for outside advice, but try to do this before the claim.

Bear in mind, the law and values vary and as there are many variables, you must be flexible. If you cannot be at this stage – imagine the situation when the service charge bills increase!

Also think about what will happen afterwards, for instance agree on a managing agent if possible. This avoids confrontation over future bills and ensures that you are up to date with the legal requirements of being a freeholder.
Essentially, structuring your agreement is about dealing with a fair apportionment of cost, current or future. If life is not simple, at the end of the negotiation ask the advisers to arbitrate. In terms of the fees and consequential costs – such as the costs of non-participating lessees – if you can, split costs based on shares to be created, or it may be based on service charge percentages, after all post-enfranchisement maintenance bills are likely to be allocated this way.

Protect yourself

You must cover the consequence of unforeseen circumstance such as someone needs to withdraw. This can be a long process. With this in mind, you should speak with your solicitor or surveyor and protect yourself. In the event that the collective cost becomes untenable consider service of protective lease extension applications. If timed correctly (in my view post-service of the enfranchisement notice), this should be less expensive, with the benefit of a fixed valuation, and become active if the collective enfranchisement claim is withdrawn.

Keep an eye out for further enfranchisement features appearing in the future issues of News on the Block magazine. News on the Block is published six times a year in print and throughout the year at www.newsontheblock.com.

Call 08700 600 663 to subscribe or to discuss the magazine in more detail.

IMPORTANT NOTE:

The enfranchisement process can sometimes last several months or even years. When it comes down to collecting the necessary payment you should not rely on a verbal promise. Entering into enfranchisement without a participant agreement is unwise because if a promised payment is not made the whole transaction could collapse.
The purpose of a participant agreement is that you get a binding agreement from your neighbours – when people are signed up they are legally obliged to pay the sums due under that agreement. As with any other contract it is enforceable should they not be forthcoming with the expected payment. The agreement is enforceable through the courts if necessary.