Offer to purchase freehold

Bloke

Yesterday I recieved a letter with an offer to purchase the freehold on my house (3 bed detached, bought in 2006 for 189,950). The lease was for 999 years, starting in 2004. We currently pay £150 ground rent per annum, which is reviewed every 25 years and is then set on a formula based primarily on the average earnings of the country at the time.

The amount to purchase is £7,595 and the offer is open for one month from the date of the letter by the leaseholder 'Estates & Management Ltd'

The amount to me seems like a hell of a lot of money (at the current ground rent this would take 50 years to make up, and all other posts i've read mention amounts that don't come close to this). Also the fact the offer is only open for one month suggests that either they want me to make a snap decision to buy or that they're planning on selling it on to someone else?

I've read through other posts about leaseholds and visited the site where you can review the outcome of ombudsman freehold valuations which all seem to come out with a value primarily based on a formula I can't get my head around (can anyone decipher this?!).

I guess what I'm asking is...

Is this a value that seems reasonable?

Is there a big benefit to me of buying the lease when there is so long left to run on it? I understand I would have to apply and pay if I wanted an extension or similar but I'm guessing they wouldn't be able to charge me anywhere near this amount.

Any other help or comments?

Sorry about the long post but thought it best to provide all the information I could.

Fire_Fox

Are you sure this is genuine, has it come from your freeholder/ managing agents or another agency?

Bloke

Yes, the original freeholder was the developers, Miller Homes. In August last year we recieved a letter from their solicitors and the new freeholder stating that the freehold had been purchased by 'Flambayor Limited', who are using 'Estates and Management Limited' as collection agents.

Richard_Webster

The problem is the variable ground rent. If they sell the freehold to someone else they would pay a figure that took that in to account. There are very few new leasehold houses these days and I would certainly have been seeking a substantial amount off the price when I bought the house to reflect the likely cost of buying the freehold.

The problem is that unless there is something very special about it, the house will be more difficult to sell simply because it is leasehold because a percentage of buyers have a prejudice against leasehold houses. If the ground rent is greatly increased in the future that will make it more difficult still. Also, there is probably a provision requiring the freeholder's consent for any alterations and extensions, but which from their point of view can include quite minor things like double glazing. Some freeholders will charge £500-£750 just to consider whether to give a consent for such alterations!

OK, you may think, the freeholder wouldn't find out about any alterations - but when you sell, your buyer's solicitors will not want their buyer client to take the risk of them finding out, so they will want a consent and you will be trapped. No good then protesting the fee is unreasonable - buyer's solicitor then says he agrees and is going to warn his client that the freeholders charge unreasonable fees - buyer then decides not to proceed!

I can't tell that the figure is correct because, as you say, the formula is complicated. Just on the existing ground rent, without the potential increase, they could argue for a figure of £2-3K. You can try asking how they calculate the figure and making a lower counter offer. If you don;t buy the freehold at some point it may be more difficult to sell in the future - didn't anyone warn you about the potential effect of an increasing ground rent?

Bloke

Thanks for your post Richard, the house is built on former MOD land, could this be a reason why it's leasehold?

No-one warned us about the effect of an increasing ground rent - although I guess we should have asked to see the lease, all we were told was that it was a £150 per annum payment.

You say that without the potential increase they could argue for £2-3k. Can they really argue for £5k more when the increase is only in line with wages and only reviewed every 25 years?

DiggerUK

Bloke,
It's not just that there is a market trading in freeholds of properties, it's a whole industry.
They are popular with investors, because the income from such investments is known well into the future by looking at the ground rents.

The other way to boost their income is by "sweating the contacts" What this means is that they look at your lease, and see how they can raise the return by what services they can charge you for. RW mentioned about double glazing, he ain't making it up.

By law they have to offer the tenant, you, the chance to buy before putting it on the open market.
Put a brake on the proceedings, write back and say "After taking advice I am prepared to offer the market value for the freehold of....." As RW is in this field of work use his estimate to guide you.

As a freeholder you would be in a better position all round.

Best of fortune.

Bloke

Thanks Digger,

I hadn't thought of it that way but yes I can see that they make sound investments, knowing how much return you'll be getting - and that you can sell on again if you should need the capital.

Richard, if you're still monitoring this thread (or anyone else who can help) if I was to follow Diggers advice and offer a lower amount, what amount would you suggest, I know it's all guesstimates but I'm sure your's is better than mine!

Also by doing this, would they have to come back to me about the offer before they could sell it or after the one month mentioned in their letter could they just sell it on regardless?

DiggerUK

Bloke,
I guess these are unbiased in their advice. If it doesn't link through, go search engine, "buying freehold in UK"
http://england.shelter.org.uk/get_advice/renting_and_leasehold/leaseholders_rights/buying_the_freehold

charliee_3

it seems a bit pricey.. we have just bought a leasehold house but we have bought the freehold at the same time for £1400 plus costs. The ground rent was only £18 a year and had no provision for going up according to the lease. it has about 960 years left, but we wanted to purchase it as this is our first house and we didnt want to feel like it wasnt really ours and we had to write to 'someone' for permission every time we wanted to chnage something... plus if and when we do sell it in the future it will be easier to sell a freehold house.
i think you can ask for a tribunal to review the valuation or similar.. but they can sell it to who they want but i think if you have been there 2 years they have to let you buy it.. i dont know.. its complicated...