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New Right to Enfranchise

In May 2009 a consultation on new provisions on the right to enfranchise (RTE) were published. A summary of responses to this consultation has just been published.

The RTE provisions in the Commonhold and Leasehold Reform Act 2002 (the 2002 Act) set out to provide long leaseholders (qualifying tenants) of flats with a right to participate in an action by other qualifying tenants in the same building to exercise rights to collectively purchase their freehold (known as collective enfranchisement).

The collective enfranchisements rights under the Leasehold Reform Housing and Urban Development Act 1993 (1993 Act) were conditional upon minimum qualifications being met such as proportions of residential use and numbers of flats owned by tenants in the building and participation.

However, amendments were made by the 2002 Act and the restrictions were relaxed so that eligibility depended upon a building having no more than 25% non-residential use, provided at least two-thirds of those flats were held by qualifying tenants and that at least half of the tenants in the building were willing to participate.

The RTE provisions were geared towards ensuring that all qualifying tenants could take part in the enfranchisement process for their building. However, under the RTE provisions in order to enfranchise a RTE company had to be created and the qualifying tenants then had a defined period by which to join the company. The implementation of these provisions has been delayed and it was this issue that has led to the consultation.

Whilst the whole process and even the creation of the company is in itself quite a simple and straightforward process, there are some concerns related to the costs and expenses of the process. Without clear guidance on how the costs and expenses are to be apportioned there is very little preventing unfairness in their allocation.

There were further problems identified with qualifying tenants waiting until the very last minute to decide whether they wanted to join the RTE company. The number of participants obviously has a bearing on the costs of the process for each individual tenant therefore if some tenants decide that they do or do not wish to take part this may have an adverse effect on the process as a whole with some tenants possibly being unable to afford to continue without other participants.

The consultation in May 2009 therefore had a total of eleven questions which set out the concerns with the RTE provisions and sought views on whether they needed to be addressed prior to the implementation. The upshot is that further amendments are felt to be necessary before the full provisions regarding collective enfranchisement in the 2002 Act are brought into force. No timetable has been proposed for this and so this matter will remain in abeyance.

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