What are my Options if my Freeholder goes Bankrupt?
09/08/2019
109
5 min read
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes
In normal times your landlord/freeholder has various obligations to fulfil such as maintaining, repairing and providing insurance for the block your flat is one part of. But what if your freeholder goes bankrupt?
Whether the freeholder/landlord is a company at risk of insolvency or an individual nearing bankruptcy, you can't assume either that the obligations will be met any more or that you'll in some way be gifted the freehold.
You should therefore be aware of your options, first and foremost such as your legal right in to buy the freehold, which is known as collective enfranchisement (subject to eligibility and assuming you can join up with enough other qualifying leaseholders) and this article is concerned with these matters.
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Bankrupt Freeholder?
Our experienced property lawyers can help protect you in this situation and create as many options for you as possible; these might include you getting together with your other leaseholders and buying your freehold to become a share of freeholder.
Experienced CLS Property Lawyers – Expert RICS Valuers – Available and competitively priced
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What happens if the freeholder/landlord going bankrupt is a company?
In the case of an insolvent company as the landlord, it may enter into administration or receivership and/or liquidation and dissolution might be involved.
Administration
In administration, an agent is appointed to act on the landlord’s behalf, and you can make a claim for buying the freehold (collective enfranchisement - click for more details), but the initial notice to purchase will be served on the agent.
Receivership
In receivership, the you/your leaseholders' initial notice to purchase is served on the receiver.
Both of these representatives are legally bound under the Leasehold Reform, Housing and Urban Development Act 1993 to respond to the notice as the landlord, and should serve a counter-notice in order for the sale of the freehold to proceed.
Liquidation and Dissolution
In the case of a liquidation, the appointed liquidator has to dispose of the company’s assets prudently, including the freehold interest in the property.
Until dissolution, however, the company maintains its role as the landlord. The liquidator may then choose to either sell the freehold or to disclaim it.
If the liquidator chooses to sell, the liquidator may be legally bound under the Landlord and Tenant Act 1987 to offer the freehold to you and the other leaseholders through the leaseholders' right of first refusal - this topic is covered in full detail in this article: Selling a Freehold Interest in Flats - Section 5 Notice and interested parties are strongly advised to read this.
If the liquidator disclaims the freehold, the freehold interest reverts to the Crown Estate and in this scenario, you won't need to serve legal notice since the Crown is not subject to the Leasehold Reform Acts in a way that makes it possible for the leaseholders to serve a notice of claim.
Instead, they should submit an enquiry to the treasury solicitor, who acts on behalf of the Crown, in order to undertake a negotiation of the terms of the sale of the freehold.
NB As you might expect, the Crown Estate has considerable power and is not bound by many of the more commonplace statutes(!)
The freehold will usually be sold at the open market value which in simple terms means that you could in theory buy the property as share of freeholders with your other leaseholders, but you might be competing with very large commercial interests.
To an extent in this scenario (open sale) you and the other leaseholders face a more uncertain future because what happens will in large part be determined by the intentions of the new freeholder/s, including, for example, redevelopment or even demolition.
However, you might also find yourself being able to continue as a leaseholder with no great change to your situation.
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What happens if the freeholder/landlord going bankrupt is an individual?
If the owner of the property is an individual in bankruptcy, a trustee in bankruptcy will be appointed. In this case, your initial notice of claim (Leasehold Enfranchisement Section 13 Notice click to find out more) should be served on the trustee.
The trustee is also legally bound under 1993 Act to respond on behalf of the landlord and should serve a counter-notice in order to move the sale of the freehold along.
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What other options do you have?
As indicated previously, in at two or three of the scenarios described, you can attempt to buy the freehold and become a share of freeholder, which may well be worth the work and expense, particularly in the medium term.
And if the freehold is effectively in administration or receivership, then you can apply for lease extensions, formal or otherwise, in the normal way as the receiver or agent in the matter by law has to act for the freeholder.
You can also, for example, claim your Right to Manage to take over the management of your block.
Should your freeholder be both bankrupt and absent, you also have the path of applying for a Vesting Order with the goal of either lease extension (formal) or collective enfranchisement.
Bankrupt Freeholder?
Our experienced property lawyers can help protect you in this situation and create as many options for you as possible; these might include you getting together with your other leaseholders and buying your freehold to become a share of freeholder.
Experienced CLS Property Lawyers – Expert RICS Valuers – Available and competitively priced
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