Leasehold Enfranchisement: What Is a Nominee Purchaser?
Posted: Tuesday, February 22, 2011
by Andy Szebeni
ALEP
When buying the share of freehold of a block of flats or apartments using the leasehold enfranchisement procedures, for larger blocks it may be that an entity needs to be created that is to purchase the freehold from the current freeholder or reversioner. This entity is the nominee purchaser and there are several important things to consider.
If four or more leaseholders want to own the freehold together then they must set up a corporate body to do so. This is because the Law of Property Act 1925 states that no more than four individuals may be listed as the owners of one property.
If you are a flat owner in a small block with three or leaseholders or fewer then you do not necessarily need to set up a nominee purchaser company. However, some neighbours choose to set up a limited company anyway because it helps with running the block and allocating responsibilities, especially when flats change hands. You may also choose the same company to organise the management of the maintenance of the building, although in larger blocks you will need separate entities for management and freehold acquisition.
The nominee purchaser can be a person, one of the flat owners, or a corporate person, a trust or, most likely, a company formed by the flat owners for the purpose. There is no legal stipulation dictating who or what is the nominee purchaser, so you and your neighbours have a free choice of directors, according to your circumstances. However, the directors have legal responsibilities and it is worth considering a cost-effective directors’ and officers’ liability insurance policy.
This body could be a company or a society and the cost of setting this up and all the legal and professional costs fall to the leaseholders, not the freeholder. This process does not need to be expensive - a few hundred pounds is normal - but you must be careful to ensure that the body is correctly set up. You can find vetted specialist in the Association of Leasehold Enfranchisement Practitioners.
It can be expensive and time-consuming to have your Initial Notice rejected by the freeholder because you got it wrong. For this reason, we would recommend you ask an accountant or qualified enfranchisement solicitor to set up the nominee purchaser company even though you can buy off-the-shelf limited companies freely. The professionals will need to produce the articles of association to reflect the purpose of the company and to govern voting rights of the participants and control of shares.
The nominee purchaser must be decided upon at an early stage, in that he or she conducts the later stages of the process and, on completion, will be responsible for the management of the building. Deciding upon the nominee purchaser should be one of the early actions along with setting up a participation agreement and choosing your professional advisers in the enfranchisement process.
Any negotiations or arrangements involving neighbours in a leasehold block are fraught with difficulty. You need to be prepared for frequent long discussions with give-and-take on all sides to settle upon constituents that as many flat owners as possible are happy with. The preparatory work you do here before the notice serving begins will reap dividends in the future for all the flat owners.
Andrew Szebeni is part of the management team of the Association of Leasehold Enfranchisement Practitioners. You can use their web site to find a leasehold solicitor or surveyor.
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