Collective enfranchisement: cutting through the jargon

What is collective enfranchisement?

Collective enfranchisement is a right, subject to qualification, for the majority of the owners of residential flats in a building, and sometimes part of a building, to join together and buy the freehold of that building (“collectively enfranchise”). The relevant law is the Leasehold Reform, Housing and Urban Development Act 1993 (as amended) (the “1993 Act”). This can give control to those flat owners of the way the building is managed and run.

One such example of a qualification to this right, is where the right is to be exercised in respect of any building where the non-residential parts of the building exceed 25% of the total floor area of the building.

Facts of the case

Winchester Park Ltd (“Winchester Park”) was the freehold owner of a building. 1 Palace Gate Ltd (“1 Palace Gate”) was the company established by the leaseholders and their nominee purchaser for a claim under 1993 Act.

Winchester Park argued that 1993 Act did not apply to the building at the heart of the dispute, on the basis that one of the “flats” was, in fact, a commercial unit, and therefore more than 25% of the floor area of the building was used for non-residential purposes.

1 Palace Gate commenced legal proceedings against Winchester Park and sought a declaration that the leaseholders were entitled to exercise the right to collectively enfranchise. During those proceedings, the court made an order for disclosure, including documents relating to the status of the disputed “flat”. On two occasions, Winchester Park failed to provide such disclosure and an order for specific disclosure, in the form of an “unless order”, was made against it. The consequences of failing to comply with the unless order meant that if Winchester Park failed to provide proper disclosure by the required date, its defence would be struck out. Winchester Park failed to comply with the unless order and the defence was struck out.

The Judge proceeded to consider 1 Palace Gate’s application for a declaration. It found in 1 Palace Gate’s favour and held that the 1993 Act applied to this building. It therefore made the declaration.

Winchester Park appealed, but this was dismissed by the High Court because:

The failures to disclose were serious breaches of various court orders; and
The disclosure was highly relevant in determining the status of the “flat”.

Comments

This case is a useful reminder of one of the limits of the 1993 Act, and how it will be applied. Having over 25% of a building occupied for non-residential purposes may prevent leaseholders from collectively enfranchising. Further, this case highlights the qualifications of being a residential leaseholder.

Winchester Park’s failure to comply with a critical and compulsory court order led to its failure in defending this case, with potentially very significant and costly implications with the leaseholders now having the right to collectively enfranchise the building from it.

Our experience

We have dealt with a wide range of claims for collective enfranchisement on behalf of hundreds of leaseholders, to just two leaseholders, joining together to buy the freehold of a building. We have also acted for landlords and freehold owners like Winchester Park, who may have strategic reasons to avoid such a claim. We are adept at handling these types of claims, complying with orders (!) and our straightforward approach is key to our success. What’s really important to clients when it comes to collective enfranchisement is cutting through the jargon so you can clearly understand the process. If you need advice about collective enfranchisement or leasehold enfranchisement, please get in touch.

*Please note that the government are currently in the process of changing the rules applicable to collective enfranchisement and so this legal update is based on the current legislation as at the date of issue.