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Q&A on the freehold

The freehold for the Three Courts has been purchased from Freshwaters by a group of 83 leaseholders together with a property fund

Glossary of terms

This Q&A is an attempt to answer some of the questions people may have.

The process is complicated, so here is a quick glossary of terms used in this document. 

Freshwater
Until recently, Freshwater owned our freehold. They also own 17 flats within the blocks. 

TCMC or The Three Courts Management Company
Until recently, the management company responsible for running the blocks. 

BBB Courts
Company formed to own the freehold. From now on, this new company will take over responsibility of running the blocks. 

Faraday

Our current managing agent.  TCMC, and now BBB Courts appoint Faraday to run the blocks on our behalf.

Michael Richards

Our former managing agent.

“The Fund”
A property fund (‘Enfranchisement Investment Properties’) who we used to fund the purchase of the freehold on behalf of the non­participant leaseholders. 

Freehold
The owner of a freehold owns both the property and the land on which the property stands outright. Previously our freehold was owned by Freshwater, now it is owned by BBB Courts. 

Share of Freehold or SOF
Where a property is split by multiple ownership, a company can be created to own the freehold, and each owner then owns a share of this company, essentially allowing the ownership of the freehold to be shared. In our case a SOF corresponds to a share in BBB Courts. 

Leasehold
The owner has a lease which gives them the right to live in that property for a number of years, as specified in the lease. Those who own a share of freehold will have their leases extended to 999 years. Other leases in the property range from around 20 years to 125 years. 

Leaseholders
People (or companies) who own a lease within our building.  

Enfranchisement
The process enabling leaseholders to buy their freehold from the freeholder. 

Participants
Leaseholders who took part in the enfranchisement process, who now own a share of BBB Courts. 

Non­participants
Leaseholders who did not take part in the enfranchisement process.

Why has this happened?

The main reason for this is so that the participating leaseholders can extend their leases. Many of the leases in the blocks were under 70 years and this meant they were becoming difficult to mortgage or sell. 

The cost of extending a lease is nearly the same as buying a share of freehold and then granting a 999 year lease, so it was decided that we should collectively join together and do the latter. 

This process of purchasing the freehold by leaseholders is called ‘enfranchisement’.

Tell me a bit more about what happened...

In simple terms, leaseholders have the right to buy their freehold if 50% or more of them act together to purchase it from their freeholder.

Since our blocks contain 138 flats, we needed at least 69 participants. In 2007, the TCMC board approached a company called ELS to co­ordinate this process as such a large number of flats were involved.

The share of the freehold represented by the non­participant flats also had to be purchased and it was decided to use an external property fund (‘Enfranchisement Investment Properties’, henceforth referred to as ‘the fund’) to do this.

There were many complexities involved in the legal preparation for this, mainly relating to the fact that the leaseholders already managed the block and also the Orange aerial on Beverley Court, and the garages. By August 2011, a majority of leaseholders had officially banded together and we ‘served notice’ on Freshwater.

The negotiations over the price to pay carried on for around a year and were set back by ELS the company being wound up part way through, but were settled in late 2012. The transaction completed on 16th August 2013.

I wasn't part of this process, why wasn't I included?

Every effort was made to contact all leaseholders and include as many as possible. All leaseholders were written to and invited to join. Anyone from whom we didn’t receive a response was chased by phone or by visiting their addresses where possible. Information was also posted up on the notice boards within the blocks.

After the legal documents were prepared in early 2011, no additional participants were allowed to join the enfranchisement process, so if you purchased your flat after this point and the previous owner was not a participant, you would not have been able to take part.

There is a group of leaseholders who did not take part in the enfranchisement who are looking to group together to buy their shares of freehold. If you are interested in joining them, please contact  [email protected]  and we can put you in touch with them.

Will anything change as a result of this?

In order to explain what will change, it is important to understand the previous situation.

Until the collective enfranchisement completed, a company called Freshwater owned the freehold. Freshwater also held the leases for 17 of the properties, which they rented out.

About 25 years ago a number of leaseholders, who were frustrated at Freshwater’s poor management of the blocks, took over the management of the building by agreement. They set up the Three Courts Management Company Ltd (TCMC) in order to do this. TCMC then owned the head lease, managed the building, rented the roof of Beverley Court to Orange (the mobile phone company) and owned the lease for the porter’s flat. 133 leaseholders own a share in TCMC (5 leaseholders do not).

TCMC had a board of directors and a chairman who were volunteers from amongst shareholders.

The diagram to the left attempts to illustrate the previous structure.

For the purposes of enfranchisement, a new company, ‘BBB Courts’, was formed which now owns the freehold. Currently, the directors of this company are (more or less) the same directors of TCMC.

The 138 shares (one for each flat in the block) in this company have been given out to the participants, Freshwaters (for their 17 flats) and the Fund accordingly.

The new company is in the process of granting 999-year leases to the 83 participants.

What has happened to TCMC?

TCMC remains as the owner of the porter’s flat, but this will be its sole responsibility; it will not be responsible for managing the blocks.

The laws surrounding enfranchisement meant that when BBB Courts purchased the freehold it also had to acquire the head lease vested in TCMC as well and merge the head lease with the new freehold. There was no way around this and therefore now BBB Courts will manage the blocks. Moving ownership of the porter’s flat from TCMC to BBB Courts would have been costly and complicated from both a legal and tax perspective, so it was decided to leave it under the ownership of TCMC.

TCMC did participate in the enfranchisement, so does have a share in the new company and will own a 999-year lease on the porter’s flat.

Ownership of the common parts will pass to BBB Courts as it owns the freehold. The common parts include the roof of Beverley Court and consequently, the rental contract for the Orange mast will transfer to BBB Courts.

I didn’t participate in the enfranchisement, but own a share in TCMC. Will I no longer have a say in how the blocks are run?

Unfortunately, you will no longer be able to legally vote on BBB Courts matters. However, if you wish to take an active involvement in the running of the blocks, there are provision for non­-shareholders to join the BBB Courts board.

Essentially you will be in the same position as leaseholders who do not hold a share in TCM is now. You will be invited to attend the AGM each year, but will not be able to take part in any official votes. TCMC was always run for the benefit of all leaseholders and this will continue to be the case for BBB Courts.

Furthermore, all the legislation that has been brought in over the last 30 years to afford protection for individual leaseholders­ rights to information, rights to be consulted on major works and long­-term contracts, rights not to be charged unreasonable service charges, etc. ­apply just as much to resident-controlled landlord companies as outsider landlords, so flat­ owners who didn’t participate will obtain the same protection as before in this respect.

Does anything else change for leaseholders who did not participate in the enfranchisement?

Very little else will change. These leaseholders will be instructed to pay ground rent directly to the fund who own your corresponding share of freehold. The fund will write to you directly with instructions on how to do this.

You still have the legal right to extend your lease, although the fund will additionally also offer to sell you the share of freehold which corresponds to your flat for a similar price.

It is expected that gradually more and more of these leaseholders will also become share of freeholders and will then have the same status of those who participated in the original enfranchisement.

What will happen to leaseholders who did participate in the enfranchisement?

These leaseholders will have 999-year leases granted and will no longer have to pay ground rent. They will be able to put themselves forward to stand on the board of BBB Courts and will be able to vote on important issues where relevant.

Should the need arise, they will be able to extend their leases in the future at no cost (other than administrative/legal costs).

Their lease and their share of freehold must always be owned by the same entity (which is also the case for all shares in TCMC). When flats are sold, the corresponding share of freehold (ie, the share in BBB Courts) and share in TCMC must also be passed onto the new owner.

Why did the fund offer to pay for the non­ participant flats? Did they do it out of generosity?

It was not out of generosity; the fund has a financial interest in the process. The laws governing enfranchisement mean that they can purchase the non­participant parts of the freehold at a significantly reduced rate as they do not hold the corresponding leases. When they sell these SOF on, leaseholders will pay the full rate and the fund will expect to make a profit. Also, as time passes and leases get shorter, the amount leaseholders pay increases, further increasing the financial gain for the fund. If a lease is left to expire they will take on ownership of that property.

Will the fund get a say in how the blocks are run?

They do have a vote, although they have confirmed in writing that they will not exercise it in relation to day­-to­-day management matters and would only use it in exceptional circumstances where they felt that the security of their investment was threatened.

We were also careful to ensure that they would not be able to do anything sinister (eg, build extra flats on the roof) without the consent of other freeholders. An independent solicitor was sought to review all the legal documents to ensure that this was the case.

So what will change in how the blocks are run?

Very little will change in the management of the blocks as a direct result of enfranchisement. Often enfranchisement is also used as an opportunity to wrestle control of an estate from the freeholder, but this does not apply in our case as the blocks are already managed by ourselves. As described previously management of the blocks will be transferred from TCMC to BBBCourts. Most people who are shareholders in TCMC will also become shareholders in BBBCourts.

The new board of BBB Courts directors take on the role of managing the blocks.

BBB Courts, rather than TCMC, will in future appoint the managing agents, and consider the appointment from time to time.   

Does TCMC receive anything as a result of selling the head lease?

Yes. When the purchase completed, TCMC received a sum of money. 

I did not participate in the enfranchisement. How do I extend my lease or purchase my share of freehold?

You still have the legal right to extend your lease, although it is expected that anyone doing this would opt to buy their share of freehold in preference and grant themselves a 999-year lease.

In order to buy your share of freehold, you will need to contact the fund. You may need to appoint a surveyor and a solicitor to act on your behalf. You might look to team up with other leaseholders within the blocks in order to share the costs and as mentioned previously there is a group of leaseholders who are planning to do this. Email [email protected] and we can put you in touch with them.

It is advisable to purchase your share of freehold before your lease falls below 80 years as at this point the price increases significantly.