collective enfranchisement when there is partial participation

[anothertoy]

Who owns the freehold of the non participating leaseholders after collective enfranchisement? If it is the RTE Company, then they will benefit from the marriage value at a later date should the others want to extend their lease? So the existing freeholder misses out? If that is the case, then wouldn't every block of flats just use the minimum participating leaseholders to buy the freehold, later on, get the RTE company to sell the freehold to the non participating leaseholders for £1 and everybody splits the savings (= half marriage value)? The freeholder loses alot of the marriage value in this situation?

[jeffrey]

1. The block's freehold reversion must remain intact; never ever sever.
2. Participant lessees (no matter how many) or their nominee company will acquire the entirety.
3. Participant lessees then take-up lease extensions at no further cost.
4. Non-participant lessees don't. Their position is unchanged. They have no stake in f/r.

[anothertoy]

So am i right in saying that the freeholder only gets half (assuming 50% participation) rather than 100% of the marriage value if ALL leaseholders had participated?

[jeffrey]

No. The f/r price is the f/r price, no mater who (or how many) buy.

[James 2009]

No. The f/r price is the f/r price, no mater who (or how many) buy.

I can't believe that I have only just spotted this.

I believe that you are wrong... to quote lease-advice.org -

In a Collective Enfranchisement action marriage value is only chargeable in respect of the flats of the participating leaseholders... The flats of those leaseholders not participating in the action are not included in the calculation in that there will be no improvement in the value of those flats arising from the enfranchisement.

Please accept my apologies if I have missed something obvious!

Another toy. Assuming 4 flats, £10k marriage value per flat (assuming participation.

4 participate - £40k marriage value, 50% to freeholder = £20k
2 participate - £20k marriage value, 50% to freeholder = £10k

So, the freeholder gets 50% of the MV on enfranchsiement, he gets 50% of 50% if there is 50% participation. (Assuming equal flat values and lease lengths).

[jeffrey]

In fact, we're both right.
The more lessees that participate, the less each has to pay.
If some have leases with <80yrs. unexpired, the f/r value includes marriage value. That's payable whether or not such leases' lessees participate.

[James 2009]

In fact, we're both right.
The more lessees that participate, the less each has to pay.
If some have leases with <80yrs. unexpired, the f/r value includes marriage value. That's payable whether or not such leases' lessees participate.

I still think that you are not quite right.

Let's split the premium two ways -

(1) Capitalisation of ground rent and present value of reversion.

This does not change under any circumstances. The more lessees that participate, the less each has to pay IN RESPECT OF THIS ELEMENT OF THE VALUATION.

(2) Marriage Value.

The law (1993) quite clearly states that marriage value is only payable by participating tenants.

This opens up the possibility that were 4 tenants to own flats in a converted house to wish to enfranchise, then they could reduce the premium payble by only having two of them participate. This would be (and potentially is) VERY unfair on freehold reversioners.

HOWEVER... The law then goes on to compel the leaseholders to disclose any side agreements - to try to prevent them from agreeing that 2 should enfranchise, and then allow the other two to buy in post-enfranchisement, thus saving them all a bit of money (in respect of marriage value on the two non-participants).

Where it gets even more complicated is the Lords' decision "Earl Cadogan (Appellant) v Pitts and another (Respondents) and one other action Earl Cadogan and others (Appellants) v Sportelli and another (Respondents) and two other actions".

This decision reflects the unfairness that the amount the freeholder receives is dependent on the number of participants. It also reflects the possibility of devious leaseholder's breaking the law with regards side agrements.

What this decision does not do is grant freeholders the right to claim 50% of the marriage value in respect of non-participants. What this decision does do is grant freeholders the right ro claim an element of hope value in respect of non-participants.

I look forward to any comments on the above!!!

James

[jeffrey]

Back to basics- do you contend that the f/r sale value:
a. is not objective (reflecting what L owns); but
b. is subjective (taking account of status of purchasers)?

[James 2009]

Back to basics- do you contend that the f/r sale value:
a. is not objective (reflecting what L owns); but
b. is subjective (taking account of status of purchasers)?

I contend that the f/r sale value (I am referring of course to statutory enfranchisement, not negotiated settlement and not market value of f/r) -

a. is partially objective (reflecting what L owns), specifically with regards the capitalisation of the ground rent and the present value of the reversion; but

b. is subjective (taking account of the participation or non-participation of various long-leaseholders) with regards marriage value.

Finally -

c. the effect of b. to unfairly harm freeholders has potentially been minimised by the case I quoted above which affirmed freeholder's rights to claim hope value in place of marriage value with regards non-participants.

[James 2009]

Leasehold Reform, Housing and Urban Development Act 1993

Schedule 6 Para 4 (2) "The marriage value is any increase in the aggregate value of the freehold and every intermediate leasehold interest in the specified premises, when regarded as being (in consequence of their being acquired by the nominee purchaser) interests under the control of the participating tenants, as compared with the aggregate value of those interests when held by the persons from whom they are to be so acquired, being an increase in value."

Hague 4th Ed

Collective Enfranchisement, The Price, Marriage Value 27-09

"In order to minimise the amount of marriage value payable to th freeholder, it might be thought sensible to restrict the number of participating tenants to the bare minimum sufficient to comprise the statutory majority. It is for that reason that there s a duty to disclose agreements with non-participating tenants, and compensation payable for the consequences of non-disclosure."