Help !!! buying a freehold , over valuation!

chelt_Robin

I purchased a new build flat in late 2007. The block is made up of 13 flats. I purchased my flat for £105,00. Now all the flats have been sold I recived a letter from the developer wanting to sell the freehold to the owners of the flats for £960 + costs per flats. This is based on 20 years ground rent! The lease has 996 years remaimng on it.

Is this normal practice, the cost of the freehold seems very high to me?
What benefit do I have in owning a share of the freehold?
If I object to buying a share and all the other owners want to buy, do I have to?

emg

Sounds cheap to me, I've just paid £4000 for my share of freehold.

Premier_2

It's not something I've known of before, but perhaps the freeholder is not wanting to wait to be approached by leaseholders demanding the right to purchase the freehold so has offered it up?


Some information here

http://england.shelter.org.uk/get_advice/advice_topics/renting_and_leasehold/leaseholders_rights/buying_the_freehold/buying_a_share_of_the_freehold

In essence, if half of the leaseholders agree to buy the freehold, it can be bought by them. If you don't want to buy your portion, they will buy it and own it - it's affectively an all or nothing scenario as far as the seller is concerned.

The advantage is that as a freeholder, you are not goverened by a third party who can say what you can or can't do - effectively the lease, and also you won't need to pay ground rent (since you own the ground) but could profit from charging ground rent to those not investing (although I'm not suggesting any profit from ground rent should be the basis for such investment, as it will probably be a poor investment on that basis)

Of course, as the freehold will actually be owned by a company (of which you will presumably be an equal shareholder if you invest into it to buy the freehold) the company may still make rules, but at least you would have a say as a shareholder of that company.

I've no idea if the price the freehold is being offered at is a good price or not, but £13k for a plot of land that has permission for 13 flats on seems cheap to me, but that may not be the way it is valued.

If there is enough interest to buy the freehold, then it would be worth getting it professionally valued to ensure it is good value for money and negotiate with the seller if it's not.

Tassotti

Something to consider is that not many lenders will lend on freehold flats.

Would greatly reduce your ability to sell.

Premier_2

Tassotti wrote: »

Something to consider is that not many lenders will lend on freehold flats.

Would greatly reduce your ability to sell.

That's true regarding freehold flats, but in this case I believe all the flat owners will still own their flats on a leasehold basis - it's just that they will also own a share in the company that owns the freehold. (as opposed to it being owned by an independant third party)

Typically, they can only continue as a shareholder whilst they own the leasehold flat, meaning they would need to sell their share of the company when they sell their flat. The new flat owner would usually be told to buy such share in the company as a term of owning the flat.

Tassotti

So each shareholder leases the flat from themselves :rotfl:

Hmm confusing...I know what you are saying though.

To OP, I don't think there is any advantage to buying the lease.

I had a flat where the leasehold was offered to me, but I declined. I believe that a company has to give first refusal to the lessees.

The ground rent was £50 per annum (which it looks like yours is also). It was written into the lease that this figure cannot change.

Do the leaseholders also manage the block?

Doozergirl

Because the leases are so long, there is little reason to buy the freehold.

If you want to manage the building yourselves then you can do so without owning the freehold - you just take the Right to Manage which is a lot cheaper than buying the freehold. ml,

guppy

Premier wrote: »

It's not something I've known of before, but perhaps the freeholder is not wanting to wait to be approached by leaseholders demanding the right to purchase the freehold so has offered it up?

They have to offer it to the tenants before they can offer it to auction.

A lot of developers now seem to set quite high ground rents, allowing them to pocket a reasonable lump sum by selling them off to investors at auction.

Tassotti

Looking at it from an investment view of an outside company.

13 flats about 1K per freehold is 13K

Return 13 x £50 = £650.00

Over the lease term, amount recouped is £647400 (just need to live another 996 years)

Now, I know I've been drinking, but in my reckoning that's a 20% return pa.

Seems like a good deal for not much work.

Hmmmm...who's selling?

Tass

Edited...need to stop drinking....it's 5% return..ooops

Premier_2

guppy wrote: »

...A lot of developers now seem to set quite high ground rents, allowing them to pocket a reasonable lump sum by selling them off to investors at auction.

I doubt anyone would invest in the freehold at the price requested just to gain the income from ground rent.
Such investment would only generate 5% ROCE - you could get more by putting the money in a bank

squoog

If you or other leaseholders don't buy it, it may be offered for sale elsewhere. This happened with a flat I own and the freehold was bought by a national company that charge a fortune to manage it and will not respond to maintenance queries, hence we are now trying to buy it from them.
The price you quote seems okay to me, when you consider the peace of mind it gives you and also will make your flat more attractive if you sell at some point.
Have you spoken to the other leaseholders?