The enemy at the door

Some tenants who win the freehold can be worse than the landlord. By Karen Woolfson
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The Independent Online
Many thousands of leaseholders face regular battles on their home territory with landlords who abuse the ownership of the freehold. The freeholders may demand too much in service charges, not maintain the property properly, fail to consult tenants when the law requires, charge for imaginary works, fiddle the accounts, fail to distribute information and use underhand tactics to quash disapproval.

For tenants who are prepared to defend their rights, however, a rich array of legal ammunition exists which can help overcome their landlords' behaviour. Often, particularly where the problem does not involve a single leaseholder, the best strategy may be to unite an army of tenants to take over the freehold of the property, even if the landlord does not want to sell.

That tactic can give tenants control over how their block is managed, increase the value and marketability of their flats and give them the ability to extend their leases at the same time.

However, there are risks. "It is often the tenants, not the landlord who are the real enemy," says Terence Michael, a member of a litigation support network for flat owners. Replacing your landlord with a group of people who change from downtrodden tenants into little Hitlers at the scent of power could spark a war on many fronts. Thus, the cardinal rule is to identify your enemy prior to any manoeuvre.

If you want to buy the freehold as a group, which is known as the right to "enfranchise", the next step is to find out whether the tenants are willing to participate and whether the building qualifies for enfranchisement. To do so, a tenant must have a lease that was for granted for at least 21 years, no matter how many years are left on it, a lease where no rent is payable in the first year and not fall into the exclusion category as do, for example, those who have a business lease.

The group participating in an action to buy the freehold must form at least two-thirds of the qualifying tenants and live in at least half of the flats in the building. And at least 50 per cent of those taking part must have lived in their flat for the past 12 months or for periods that add up to three years in the past 10. Moreover, the building will qualify only if at least two-thirds of the flats in it are let to qualifying tenants, and no more than 10 per cent of the internal floor area is in non-residential use, which rules out most flats over shops.

"It is often difficult to organise a group of tenants through this byzantine qualification formula, which causes some to give up at the first barrier," says Peter Hayler, chief executive of the Leaseholder Advisory Service. "If you take a standard Victorian house with six flats, it is not that difficult to get four flats to proceed. But if you take a block of 70 flats where few people know each other, it becomes a complex operation of getting the group together and then holding them together."

Once tenants have agreed to apply for the freehold, the next step is to appoint a nominee purchaser who will act for them throughout the process and will own the freehold. David Marcus, partner in the law firm Franks, Charlesley & Co, says the nominee could be an individual, but it is safer to set up a company.

Most tenants take the company route. John Stephenson, partner at Bircham and Company, another law firm, says that in blocks of up to 12 flats a provision should be put in for each flat to appoint a director.

He warns: "There is something seriously awry if there are, say, five lessees, four of whom are directors and one of whom is only a shareholder unable to become a director. A small block where only some of the flat owners are directors is a recipe for trouble, gives the impression of a bully-boy set-up, is bad management and shouldn't happen in an ordered world."

After thrashing out a company agreement, you can serve a notice on the landlord saying you want to take up your right to buy the freehold for a specified amount. The landlord normally rejects the sum offered and if no settlement is reached after further negotiation, the case can be taken to the Leasehold Valuation Tribunal. How much you pay for the freehold will be calculated in the same way as extending a lease, though the sums involved are greater.

If you are not legally entitled to buy the freehold, it may still be possible to negotiate with the owner to persuade him to sell it to you. However, the asking price will then depend on how desperate you are and how eager the freeholder is to sell up.

Once the process is complete, do not become complacent, as troubles sometimes flare up on a different front. Terence Michael concludes: "Beware of the company secretary who could be more of a problem than the landlord you've just got rid of. Watch out for the fraudsters who put carpet on the stairs then extend it into their own flat, fail to provide proper accounts or exploit their position in other unlawful ways."

Sometimes, it seems, buying the freehold means jumping out of the frying pan into the firen

Karen Woolfson will be writing a monthly column on leasehold issues in the mid-week Money section of 'The Independent' from July. She welcomes letters from readers. Her address is: Home Battles, Personal Finance Section, The Independent, One Canada Square, Canary Wharf, London E14 5DL. Karen regrets that she is unable to reply personally to all letters sent in.

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