Enfranchisement of property with possible financial liabilities from prior years

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    Enfranchisement of property with possible financial liabilities from prior years

    I hope that someone with a property law background can help with my enquiry as to the transference of financial liabilities from one freeholder to the next upon purchase. In this case via enfranchisement.

    We are a mixed-use property that is 15 years old.

    By mixed-use I mean we have:

    2 residential blocks - consisting of 52 flats; and

    6 commercial unit’s; and

    15 units that are an affordable housing unit - these are contained within the build of the residential block (ground floor to 4th floor) with the residential units extending above these by a further 2 floors.

    It is the intention of the leaseholders of the residential units (and the stair-cased affordable housing tenants) to pursue enfranchisement.

    We have a recognised Tenants Association and we have over 70% of the leaseholders as participants.

    We have validated that the block is eligible for enfranchisement.

    In prior years, the YE Service Charge Accounts have been called into question. A county court application was made and the freeholder was issued a demand for payment. The freehold was set up in the BVI and enforcement of the CCJ hit a block.

    A new FH acquired the shares of the property after the former filed for Administration (albeit they still maintain other FH interests elsewhere as an on-going concern).

    It is our understanding the CCJ still applies to the new and current FH because they acquired the share holdings of the former company (albeit they then changed the FH company name).

    The subsequent service charge years will soon be called into account as these too appear to have been incorrectly administered.

    The concerns are many. The trade-off between many more years of an external FH controlling the building versus Leaseholders taking control and remedying the issues in Management of the block and Financial control favour the pursuance of enfranchisement (which We believe to be the best and most appropriate course of action - compared with either a FTT appointed managing agents, or a RTM - but please do correct me if we are wrong!).

    It is our understanding that once the Enfranchisement is complete, ALL of the prior financial liabilities will follow. So a Leaseholder that is not adjoined to the Freeholder could make an application to the FTT and then it is the newly created Freeholder Management Company that would now become liable for those costs with no recourse to the prior Freeholder(s).

    Is our understanding that we will now become liable for any s20b claims from 2006-2021 correct? Are there any legal options open to us to ensure that only current year liabilities are transferred (IE from the service charge year in which the enfranchisement is made)?

    Advice as to our best course of action is greatly appreciated!

    1. When the freehold title of the building is purchased under the enfranchisement process, the company ( controlled by 50%+ leaseholders ) will pay the price to the existing freeholder and receives ownership of the property ( freehold title of the building ) .

    The new freeholder company ( controlled by the leaseholders ) does not take over the debts of the current freeholder company .

    2. The "unspent money" in the service charge account belongs to the leaseholders and has to be handed over to the new management company which is appointed by the new freeholder company.


      How much is the CCJ for ?

      Were the leases granted post 1996 ?

      Depending on its size you may have to take a view on it - the benefits of obtaining the freehold may outweigh the sums involved.

      The danger also is that the complexity of the matter drawing in the CCJ may cause participators to lose interest and that is absolutely essential if you are to be successful


        Many thanks both.

        the CCJ is only £15k, so that’s the lesser issue in the decision making process.
        the “potential” liabilities for s20 claims could be in the region of £200k - but this requires an accounts audit (not scheduled) and dates back from the 2009-2012 claim that led to the CCJ costs order being issued.

        From 2009 there have been some very shady accounts published and the evidence to support these have not been supplied. In addition, Sinking Fund contributions continue to be collected - albeit that no major works have been undertaken - but in the latest transfer, gnat pot has evaporated as have all of the service charge funds previously collected.

        The law certainly does not favour the leaseholder, and the burden is upon the leaseholder to prove the problem albeit they have none of the evidence that is necessary to do just that.

        thanks again.


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