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Legal Q&A: How can a group of leaseholders buy the freehold of their properties if some of them are sublet?

We are a group of leaseholders considering buying the freehold of our block of flats. Many of the owners sublet their flats and the rest of us are worried about potential delays and in particular, receiving funds on time. Can you advise?

Many blocks, particularly in London, experience reduced owner occupancy, which does make coordinating buying the freehold a challenging exercise. Amongst the group of leaseholders will be those who require a lot of chasing and those who simply want to contribute financially at the relevant time. In such circumstances, actions may take longer and could add to costs.

It is therefore very important to set out at the start of the process the obligations of each leaseholder in what is known as a participation agreement. This is a legally binding agreement between the leaseholders and the party (usually a newly formed company) nominated by the leaseholders to buy the freehold. The company and the leaseholders will have a series of responsibilities during the purchase of the freehold. The agreement can contain the following:-

  • 1. the contributions each leaseholder is obliged to make towards the purchase price, costs and any associated expenditure such as Stamp Duty;
  • 2. settling any arrears on or before completion of the purchase of the freehold
  • 3. details of the professional advisers to be retained throughout the claim to acquire the freehold;
  • 4. timescales within which leaseholders are required to respond to requests for funds or information, and the consequences for failing to comply;
  • 5. the duty to pay wasted costs where one or more of the participating leaseholders chooses to withdraw from the claim or causes the claim to be withdrawn, for example;
  • 6. obligations upon a leaseholder when they sell their flat;
  • 7. the terms of the new leases (including any unusual provisions or new amendments) to be granted by the company once the freehold has been acquired;

The parties to the agreement can of course discuss and agree to insert other provisions, as well. There are also known tax advantages for entering into the agreement.

Bircham Dyson Bell is a multi-disciplinary UK law firm advising private companies, public sector bodies, not-for-profit organisations and individuals since 1834. Visit bdb-law.co.uk to find out more