Acquisition orders for leasehold property

Last updated: July 2023 | 4 min read

What is an Acquisition Order?

An acquisition order is a statutory power held by the First Tier Tribunal (Property Chamber) (abbreviated to 'FTT' and previously known as the Leasehold Valuation Tribunal) in force under the Landlord & Tenant Act 1987 Part III. Leaseholders can apply to the FTT for an order to be made, giving the right to acquire the freehold for a fair market price.

As such, along with collective enfranchisement and right of first refusal on sale, it is an option for leaseholders to wrest the control of their property's freehold from a landlord who is in breach of the terms of the lease relating to management or their obligation to upkeep the property.

While apply to the FTT might seem daunting, it is simply a case of following the steps, allowing leaseholders to step into the shoes of the freeholder when their management obligations have not been met.

What are the eligibility grounds for an acquisition order?

Qualifying building

An order will only be given for the acquisition of buildings that meet certain criteria.

Your dwelling must be self-contained, structurally detached, and include at least two flats. The majority of these flats must be owned by qualifying tenants (see below).

However, if the property contains three or more flats, the majority can be defined as two-thirds.

The qualifying tenants must have leases that were originally granted for a period of more than 21 years.

The building will be excluded if more than 50% of the internal floor space (excluding the common areas) is in non-residential use, or if the land on which it sits is within the functional land of a charity.

Qualifying landlord

The landlord may be a person or a company.

The landlord's ability (or rather, inability) to comply with management obligations under the lease forms the backdrop for initiating the process of a compulsory acquisition order. Persistent breaches and the landlord's refusal to redress grievances could tilt the balance in the applicant's favour.

Are any freeholders exempt?

Other certain types of landlord are exempt. These include ones that are a:

  • local authority;
  • an urban development corporation;
  • a registered housing association or a fully mutual housing association; or
  • or a charitable housing trust.

A resident landlord is one who lives on the premises at the time of application for the order and has occupied their home as their principle residence for the prior 12 months. The building must not have been purpose-built as flats.

Qualifying tenants

The right to acquire the freehold by an acquisition order is only given to qualifying tenants.

A qualifying tenant must hold a long lease, typically granted for more than 21 years at the outset.

The following leaseholders are excluded:

  • business tenants;
  • people owning three or more flats in the building (these people are treated as owning a single flat); and
  • sub-tenants (for example, letting under an assured shorthold tenancy agreement) where the landlord is a qualifying tenant (only the landlord acquires the right).

There need to be enough qualifying leaseholders willing to participate for the FTT to grant an order - at least two thirds of the total qualifying leaseholders.

Additionally, the participants must be dissatisfied with the management of the property, have legal standing to make an application and be financially ready to cover the expenses.

What are grounds for making an application?

The foundation of your claim for an acquisition order, as specified by the Leasehold Reform Housing and Urban Development Act, rests on two pillars: breaching management obligations and certain circumstances.

Management obligations

Breaching lease obligations in respect of managing the the property forms a valid base for you, as a qualifying tenant, to pursue an acquisition order.

Instances of such breaches might include failure to comply with the statutory obligations relating to property repair and maintenance, neglecting insurance requirements, or a lackadaisical approach towards your tenancy complaints.

For example, if your landlord has consistently disregarded the upkeep of communal areas or neglected the building's external structure, these instances can form a convincing argument in favour of an acquisition order.

However, bear in mind that isolated instances of poor management may not meet the 'reasonable' threshold established by the FTT.

Certain circumstances

The other grounds hinge on circumstances that can be interpreted as the landlord's failure to meet their obligations.

For example, the landlord's bankruptcy, receivership, or liquidation could be good reasons to initiate the acquisition process.

This ensures your rights as a leaseholder are safeguarded from unpredictable market forces that might threaten your tenure.

What is the process for applying for an acquisition order?

There are five significant steps if you are intending to seek an order: taking specialist advice, serving a preliminary notice, applying to the court, obtaining the acquisition order, and settling the purchase price.

Instruct professional advisers

Your journey begins with seeking specialist advice to evaluate the merits of your case and gauge the potential costs.

While you might feel capable of applying for an order yourself, enlisting the services of a professional advisor — a solicitor or surveyor selected for their expertise in leasehold housing reform matters — can be the equivalent of a life raft in choppy legal seas.

They can not only save you valuable time but also minimise risks and unexpected costs.

Preliminary notice

Armed with professional advice, you (or your solicitor) will serve a preliminary notice to the landlord.

This notice states your intent to acquire the freehold and serves as the first formal step of your acquisition journey.

It should include specific details like the proposed purchase price and any relevant ground rents, as well as your nominated person for the proceedings.

Failing to provide accurate information in this notice could lead to legal difficulties and possible financial penalties.

Applying to the court

If the landlord disputes the preliminary notice or fails to respond within a reasonable time, the next step is to make an application to the Property Chamber of the First Tier Tribunal.

They, in turn, will review the matter and determine if the case leans in the applying leaseholder's favour.

Acquisition order

Once the Tribunal approves your application, it grants an acquisition order.

This legal document is your ticket to acquiring the freehold. It transfers the management and ownership rights from the freeholder to the leaseholders, or to the company owned by the leaseholders.

The process may seem daunting, but remember, each step propels you closer to your goal — an acquisition order that safeguards your interests and puts you in control of your home's destiny.

Complications in applying for an acquisition order

Common roadblocks include tracking down an absent freeholder, handling a discharge of an acquisition order by the landlord, managing tenant withdrawal, and grappling with costs.

What can we do if our freeholder is absent or cannot be located?

An absent or elusive freeholder can throw a spanner in the works.

However, the law acknowledges this potential pitfall. Under the Leasehold Reform, Housing and Urban Development Act, you can serve notice on the Land Registry in case of an untraceable landlord.

This keeps the application in motion, assuring that your path towards ownership isn't stymied by an absentee landlord.

Can our freeholder have an order discharged?

Sometimes, your freeholder might attempt to discharge an acquisition order, typically a reaction to rectifying the obligations breached previously.

The court will review the application, evaluating whether the freeholder has convincingly mended their ways.

It’s an uncertain road and one where a strong legal ally, such as a solicitor specialising in property law, can be valuable.

Can the qualifying tenants withdraw?

Unexpected turns in life can lead qualifying tenants to pull away from the acquisition.

If enough leaseholders withdraw so that the threshold of two-thirds of the qualifying tenants are participating is no longer met, the process may halt in its tracks.

This decision, however, can have cost implications as the freeholder may still be entitled to recover their reasonable costs up until that point. Every participant should be aware that pulling out of the process may leave themselves with additional costs.

Can the landlord recover their costs?

A landlord faced with an acquisition order can claim reasonable costs.

These include valuation fees and professional costs, such as those incurred through solicitors or surveyors. Yet, costs must be fair and justifiable – the FTT has the final say on what's deemed reasonable.

Frequently asked questions

How does the Tribunal decide on whether to grant an acquisition order?

The process for granting an order is rigorous, demanding substantial evidence of a landlord's failure to meet lease obligations. The FTT assesses the submitted evidence, scrutinising each document and testimony.

While the breach's nature and extent play a crucial role, the tribunal also considers the other grounds specified in the notice served. The appointment of a surveyor appointed by the qualifying tenants may be instrumental in presenting a robust and strong case.

How is the purchase price of the freehold calculated?

The calculation of the price to be paid involves a lot of subjectivity depending on the building and on the circumstances.

Several factors feed into this number, including the property's market value, the original lease's length, the marriage value if the unexpired term of the leases is less than 80 years, and potential development value.

This multi-faceted calculation necessitates the expertise of a skilled surveyor, serving as a reminder that sometimes investing in professional help can, paradoxically, be a penny-saving move.

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