An additional way to buy your freehold when your freeholder has consistently breached 
management obligations
The Landlord and Tenant Act 1987 holds a little-known gem of law that enables qualifying leaseholders to acquire the freehold from their freeholder.
Normally, such a step is made by using the Collective Enfranchisement right granted by the Leasehold Reform Housing and Urban Development Act 1993 or following service of a freeholder’s formal Offer Notice under the Landlord and Tenant Act 1987 Part I.
However, where applicable, our highly specialist leasehold team is one of few law firms who are able to help you obtain an Acquisition Order to purchase the freehold of your building.
Acquisition Orders are particularly useful where the freeholder cannot be traced. The missing freeholder enfranchisement route under the Leasehold Reform Housing and Urban Development Act 1993 can sometimes prove more complex and expensive than applying to the Court for an Acquisition Order.
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What is an Acquisition Order?
The Landlord and Tenant Act 1987 (the Act), Part III, sections 25-34 provide that in certain circumstances, leaseholders can apply to the First-Tier Tribunal (Property Chamber) to compel the freeholder to sell them the freehold. The freeholder is not required to consent to the order being granted.
Given the “nuclear” nature of the order (the freeholder is forced to sell their interest in their property to the leaseholders whether they like it or not), strict criteria must be met before an Acquisition Order can be granted.
What are the eligibility grounds for an Acquisition Order?
The Tribunal can only make an Acquisition Order if the leaseholders prove:
· the freeholder is in breach of their obligations regarding repairs, maintenance, insurance, or management of the building; or
· the First-tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales appointed a manager for the property two years before the application, and the appointment is still in force; and
· in both cases, it is shown that making an Acquisition Order is appropriate given the circumstances.
To qualify to make an application for an Acquisition Order:
· the property must consist of at least two flats owned by qualifying tenants (lessees whose lease was originally granted for a minimum of 21 years);
· two-thirds of the property must be owned by qualifying tenants;
· no more than 50% of the building is occupied by businesses.
NB if you are dissatisfied with your freeholder’s management of your block, then in addition to buying the freehold, you have 2 other alternatives. Click here to read more about:
Am I a qualifying tenant?
Leaseholders who own three or more flats in the building, have a commercial lease, or are subtenants of qualifying tenants are not ‘qualifying tenants’.
Are any freeholders exempt?
Applications cannot be made if the freeholder lives in the building, the property sits within land used for/by a charity (known as ‘functional land’), or the freeholder is exempt because they are:
· a local authority
· an urban development corporation
· a registered housing association or a fully mutual housing association; or
· or a charitable housing trust.
What is the process for applying for an Acquisition Order?
Under section 27 of the Act, leaseholders must serve a Preliminary Notice on the freeholder.
The notice must provide:
· the names and addresses of the qualifying tenants (addresses for the services of notices should be included if different from the flat address)
· that the tenants mean to apply for an Acquisition Order but will not do so if matters listed in the Preliminary Notice are addressed/remedied
· the grounds on which the order is sought and the evidence to back these up
· that the freeholder should take steps to remedy matters listed within a reasonable time as specified
The 2012 case of Arrowgame Ltd v Wildsmith [2013] 1 WLR 1051, was the first case to deal with a section 27 dispute. On appeal, the Court stated that the purpose of the preliminary Notice was to provide the freeholder with reasons why the leaseholders believed they (or the freeholder company) should be deprived of their ownership of the property. The Court went on to say that informing the freeholder of the case he had to meet, rather than providing an opportunity to “mend his ways” was the primary purpose of the notice.
Therefore, the Notice would need to explain why the leaseholders sought an Acquisition Order and set out the nature of the ongoing problems.
Crucially, Geraldine Andrews QC, sitting as a deputy High Court Judge concluded:
“It does not appear to me to accord with the nature of the statutory scheme that the lessees should be debarred from making their application if the “remediable matters” complained of are remedied within the reasonable time specified in the notice, but there are still other matters justifying the making of an order, which cannot be remedied—or if, notwithstanding any cure of some of the matters complained of, the overall situation has become so intolerable for the tenants that they should not be required to put up with it any longer, which is what the judge decided in the present case.”
If the freeholder fails to remedy the matters set out in the Preliminary Notice or there are other grounds (as mentioned above), the leaseholders may proceed with applying for an Acquisition Order in the First-Tier Tribunal.
When making an application, the tenants will need to appoint a nominated person (for example, a company they have formed to buy the freehold). This person will then apply to the First-Tier Tribunal for a determination on whether the Acquisition Order should be granted.
How does the Tribunal decide on whether to grant an Acquisition Order?
When making its decision, the Tribunal will carefully examine the breach and whether or not it continues. It will also make a call on whether the building is likely to be mismanaged in the future.
An order can be granted with conditions – the most common being that it will not come into force until a specified date.
But the Tribunal will refuse to grant an Acquisition Order if the order relates to a more extensive building in which the freeholder has an interest, and it is not reasonably possible to sever the part of the premises the leaseholders have made subject to the order.
Click here to find out more about how the First-Tier Property Tribunal works.
How is the purchase price of the freehold calculated?
The purchase price will be based on what the freeholder could achieve by selling on the open property market – which means no marriage value will be payable where any of the flat leases have less than 80 years to run.
Given that marriage value can run to tens of thousands of pounds on one flat, Acquisition Orders provide a significant advantage to tenants when compared with Leasehold Enfranchisement; in the latter, marriage value is payable on flats with short leases.
A further advantage conferred by Acquisition Order, as opposed to Collective Enfranchisement, relates to costs. When granting an Acquisition Order, the Tribunal has the discretion to make a cost order in the applicant’s favour. This means the cost of applying may be offset against the purchase price.
In the case of Collective Enfranchisement, section 33 of the Leasehold Reform Housing and Urban Development Act 1993 provides that the nominee company set up by the leaseholders is liable for the landlord’s ‘reasonable’ costs, including legal fees.
What can we do if our freeholder cannot be located?
Missing freeholders can cause endless headaches for leaseholders. As mentioned above,if you simply cannot find your freeholder , an Acquisition Order could be an easier and cheaper option than Collective Enfranchisement.
The obvious challenge in the case of a missing freeholder is serving the Preliminary Notice. If all reasonable efforts have been made to find the freeholder, the nominee can apply to the Tribunal to have the requirement to serve the Preliminary Notice removed.
Section 33 of the Act gives the Tribunal specific power to grant an Acquisition Order in missing landlord cases. The valuation must be based on what a surveyor selected by the Senior President of the Tribunals certifies the freeholder would have received in an open market sale. Once this figure has been paid, the freeholder’s interest in the property is transferred to the nominated person.
Click here to read more the alternative solution to missing freeholders – the Vesting Order
Can our freeholder have an Acquisition Order discharged?
Freeholders who have had their interests in a property handed over to the leaseholders have the ability to discharge the Acquisition Order. However, they must prove:
· the acquisition of the freehold was not completed in a reasonable time
· there is no longer the required majority of qualifying tenants
· the building no longer qualifies under the Act
The below two reasons listed are also grounds for the nominated tenant to state it does not wish to proceed with the Acquisition Order.
If the order is discharged or the leaseholders withdraw, the landlord can apply to recover its costs. Other situations where costs can be recovered include:
· where the nominated person withdraws and cannot be replaced
· there is no longer the required majority of qualifying tenants
· the building no longer qualifies under the Act
Want to know more about the options open to you as the owner of a long leasehold flat?
Click here to read more about collective enfranchisement.
Click here to read more about lease extension.
Click here to read more the differences between Enfranchisement and the Right to Manage
