What happens if a leaseholder pulls out of collective enfranchisement?

Collective enfranchisement is the formal name given to the process of a group of flat owners working together to buy the freehold of their block of flats. It can be a powerful way to take control over service charges, remove ground rent and extend the groups leases to 999 years. Read our guidance note on collective enfranchisement here.

But what happens if one of the participating leaseholders decides to pull out of the process before formal completion?

At best, the group will need to make up the shortfall in funds, at worst, it can bring the process grinding to a halt if those funds cannot be put in by the rest of the group, particularly if the person dropping out has a short lease or significant service charge arrears.

This is a surprisingly common issue, and understanding the rights (and risks) is crucial if you're part of a group looking to buy the freehold, ideally before you commit funds to the process. We specialise in collective enfranchisement claims and are happy to provide initial guidance to get the group off on the right foot.

Firstly, how does collective enfranchisement work?

Under the Leasehold Reform, Housing and Urban Development Act 1993, leaseholders have the right to collectively purchase the freehold of their block, provided certain criteria are met. This process is called collective enfranchisement, and it gives leaseholders more control over service charges, ground rents, and the long-term future of their homes.

To begin the process, at least 50% of qualifying leaseholders in a building must participate. Typically, leaseholders sign a participation agreement, which sets out how the process will work and ensures that everyone contributes fairly to legal and valuation costs.

What if a leaseholder drops out of the process?

When a leaseholder withdraws after the process has started, the consequences can vary depending on timing, documentation, and the numbers involved:

1. Before the section 13 notice is served

If a leaseholder pulls out before the formal Section 13 Notice (the legal notice that starts the process) is served, the remaining leaseholders can usually carry on, provided there are still enough qualifying participants. You’ll need to re-check the numbers: at least half of the qualifying leaseholders must remain involved.

In short, it can stop a claim before it starts.

2. After the section 13 notice is served

This is trickier. Once the notice is served, the nominee purchaser (often a company formed by the group) is legally bound to proceed. If a participant withdraws at this stage, they may still be contractually obliged to contribute costs depending on what the participation agreement says.

Without such an agreement, you could be left short in terms of the original expected financial contributions from the group.

3. If the numbers fall short of the required level

If someone pulling out causes the number of participating leaseholders to drop below the required 50%, the claim can continue. The key test is that the numbers were in place when the formal freehold claim notice was served.

Can the remaining flat owners continue?

Yes, however the biggest hurdle to overcome is that the group will need to cover the departing leaseholder’s share of the purchase price and professional fees or find another qualifying leaseholder to take their place.

Some groups share the cost of the missing participant’s share between those that can afford to cover this. In that case you essentially become an investor in the non-participating flat and stand to receive a lease extension premium in future, along with ground rent payments from the non-participating leaseholder in the meantime.

On occasion, the non participating flat will be sold to a new owner who wishes to buy a share of freehold. In those circumstances we assist the group in arranging valuation and ensuring a share of the original collective enfranchisement costs are recovered in exchange for a 999 year lease at a peppercorn ground rent, and share in the freehold company.

Can you stop a leaseholder pulling out of a collective enfranchisement claim?

• Participation Agreement: This is your safety net. It should outline what happens if someone pulls out, including whether they must still contribute to legal or valuation costs. In some cases you can specify that the party in default must cover the groups wasted costs, as a powerful incentive not to join in unless they have the means to see it through.

• Upfront Financial Checks: Ensure all participants can fund their share before you begin. Unexpected withdrawals are often due to affordability concerns.

• Transparent Communication: Keep participants informed throughout. Surprises are less likely when everyone understands the process.

• Service charges: ensure the group members know that they cannot drag the rest of the group into their individual service charge disputes. Either deal with the issue or leave it; but do not wait until completion to try and resolve long standing service charge issues to the detriment of the group.

  
  

An experts view

Collective enfranchisement offers long-term control and value to leaseholders, but it must be approached carefully. A participant withdrawing midway through can cause serious disruption or derail the process entirely. With proper planning and legal guidance, these risks can be minimised.

At Peppercorn Law, we help leaseholders across Sussex and beyond secure their share of freehold and navigate complex leasehold laws with clarity. Whether you’re just getting started or facing a withdrawal mid-process, we offer fixed fees and expert advice from specialist solicitors who live and breathe leasehold law.

Get in touch to book a free initial consultation and learn how we can help your group move forward, with confidence. We help leaseholders across Sussex including in Hastings, Eastbourne, Brighton and beyond.