Help !!! buying a freehold , over valuation!

bookduck

I always thought (possibly wrongly) if you did not hold the freehold to your flat, then the ground owner could put a management company in there to charge you for 'services and maintenance' plus every other fee imaginable?

chelt_Robin

Thanks for the advice so far. My annual managment fee charge is about £400 at present. If we did not buy the freehold and a national managment company took over, what sort of fees would they charge?

Also if the flats do aquire the freehold, how would things like buildings insurance be sorted, would one person in the flat have to organise this, or would we all need separate buildings insurance.

Premier_2

As Doozergirl said, you can usually obtain the right to manage without owning the freehold.

However, that may not resolve all the issues if you have an unreasonable freeholder.

When I used to live in a leasehold flat, the terms of the lease stated that if the management company failed to maintain the garden and external appearance, the freeholder order could carry out the cost and bill the management company accordingly.

This ended up in the ridiculous situation of the freeholder, who was the original developer, sending his workmen round when they had nothing else to do, find a fault, fix it and sending a not so cheap bill in for their time.

Fortunately, once we took control of the management, we negotiated with the freeholder that any work that he felt necessary would first be advised in writing giving us 28 days notice, only after which could he use his own men to do the work if it still needed doing.

Despite initially asking the freeholder to quote on some of the more serious work, e.g. rebuild a brick garden wall, paint the windows, etc, he was well overpriced compared to alternative sources. It also stopped the less serious work he carried out and the extortionate bills submitted e.g. replace a wooden fence panel = £150, (we paid less than £20 for a similar job shortly thereafter) or replacing a light blown bulb in the common parts = £20 (we employed a local retired handyman who checked the bulbs every fortnight for free and charged us 50p per bulb if it actually needed replacing)

However, the freeholder didn't strictly need to agree to our request for 28 days notice before doing any work according to the terms of the lease, and if he wasn't so reasonable, could have continued to charge his normal hourly rate for work actually carried out.


The buildings insurance would still need to be done on a block basis. Often a managing company employs a managing agent to carry out the administration (such as billing, ordering, etc) but that could be a flat owner or owners if you agree, who may or may not be paid for that work.

Sam08

Tassotti wrote: »

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

Would greatly reduce your ability to sell.

Is this true?

I live in a flat - it's a maisonette and there is only mine and one other flat. The person in the flat below me owns the freehold and generally sorts everything out to do with the property - we go halves on any maintenance etc.

My lease is now down to 66 years so I am aware I need to look into extending it. However, I was also considering approaching my neighbour and seeking a share in the freehold as I thought this would be better.

Can anybody advise on this? Maybe I would be better off extending the lease which I believe could cost me around £5k.....??

Many thanks

neverdespairgirl

Tassotti wrote: »

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

Would greatly reduce your ability to sell.

In this case it wouldn't be a freehold flat, but a leasehold flat with a share of the freehold.

Richard_Webster

Does the other flat owner have a lease and is it only 66 years? If he does then in theory you could "share" the freehold and might have to pay several thousand for this.

Your lease would still need extending and the co-freeholder could simply refuse to sign (particularly if his lease is longer) unless you pay a further sum. Logically, if both leases are the same length it would be in the interests of both of you to extend the leases once you share the freehold. However not all flat owners are logical!

Alternatively the freeholder may own the freehold of the the whole building. This is possible without there being a separate lease of his flat. If that is the case he would not want you to jointly own the freehold because it wouldn't just be the "reversion" - (the entitlement to collect ground rent and and act as landlord during the currency of the leases), but would give a right to possession of the remainder of the proeprty not the subject of your lease. He would not want that!

Sam08

Thanks for that Richard. Yes, he does own the freehold of the whole property. So in that case, I should just consult him about extending my lease?

Many thanks for your help.

MrsCJH99

Hi - I purchased the freehold with 2 of my neighbours 3 years ago. We forced the freeholder to sell it to us through collective enfranchisement. I have to say it was one of the most stressful things I've ever done.

Involving your neighbours in your legal and financial affairs is not easy... But if you need advice contact www.lease-advice.org.

They are a government funded independent body for leaseholders.

They offer free legal advice over the phone and in person and I've always found them to be excellent.

Give them a call.

IMHO though the price for your share is cheap - its just dealing with neighbours over repairs and maintenance that's a headache.

guppy

Premier wrote: »

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

There are plenty of investors that buy ground rents. The income is very secure, and unlike a savings account the rate is fixed for the term of the investment.

Most modern leases allow the ground rents to be increased periodically, which could boost the yield significantly. The main downside is the costs of managing them.

The more dodgy companies will also seek to add to their profits by charging legally dubious admin fees, etc. as we have seen on other posts on here.

In practice, ground rents usually sell reflecting yields only slightly higher than government bonds.

Lot number 2 in this auction went for £16k. But that only had 69 years left on the lease, so the potential for marriage value is increasing all the time.

Anyway, for the tenant to be able to buy the freehold for a yield reflecting 5% is pretty good deal in my opinion, especially if there are future increases set out in the lease.

I 100% agree regarding the problems of managing a building in conjunction with neighbours though.

Premier_2

guppy wrote: »

...Lot number 2 in this auction went for £16k. But that only had 69 years left on the lease, so the potential for marriage value is increasing all the time....

Looks like someone got a bit carried away on that one, unless they had other reasons for the purchase such as they already own the property.

Current income is only £125 p.a. rising to £250p.a. in 2011. Consequently the guide price was £2k - £2.2k. I bet the seller was pleased to have got £16k for it!

The other option is that the buyer believes the current leaseholders will be wanting to renew their leases soon and when they do, will find it comes with a hefty increase in ground rent.

Interestingly the same auction had another grount rent lot (number 90) which has a current income of £750 p.a. with 122 years remaining. That too only fetched £16k (guide price £11k - £12.5k)

I understand what you are saying with regards a secure income, but that is balanced by the unsecure capital at risk - unlike a bank where you will definitely get back what you invest, who knows what the future value of this investment will be worth.


Edit: Looks like prices got cheaper as the auction went on
Lot 146 also for ground rent, current income £500 p.a. rising to £1000 p.a. in 2011 went for £5.5k
(this one may be a little different at it appears to be sub-leases on a head lease that costs £100 p.a.)