Freehold Purchase - Proportions to be paid by DIFFERENT SIZED Flats?

robertlondon

Hello Forum

Our block of flats is in the middle of a Freehold purchase from an absent landlord... which at some point will go to the Leasehold Valuation Tribunal (I think).

The block has 6 flats:
2 flats are large with 3 bedrooms
4 are smaller with 1 or 2 bedrooms

Apportioning the total cost

We're coming to the sticky point of what proportion of the freehold purchase price should each flat pay?

Should each flat pay the same, an equal amount?
or should it be divided up in some other way?

There is already a question on this forum (without much in the way of an answer) outlining the possibilities for dividing the sum:

Divide according to:
- years remaining on the lease (though here everyone has the same number of years)?
- market value of each property?
- square footage of each property?

Shares in the Management Company

Once this has been sorted we'd each need to have shares in a management company.

Again should each flat own an equal share?
(ie. each flat owns 100% ÷ 6 = 16.6% each)

Or should the shares be proportional to the percentage of the total that the flat had to pay?
(ie. 2 larger flats own 20% share each, smaller flats own 15% share)


....any advice would be most welcome. :T
....and yes I've looked on lease-advice.org but I can't find anything there!

G_M

I'm not experienced in this area but my gut reaction to this is that the freehold is of equal value to each lease-holder, and is likely to add the same premium to the value of each flat. So 1/6th each.

Similarly the benefits of a management company are surely pretty much the same. The MC will look after the block (not the individual flates), and again part ownership adds a similar amount to the value of each flat. so 1 share each.

When it comes to contribution towards maintenance costs (ie annual management fee (which you don't mention) I'd be inclined to charge the larger flats more.

GDB2222

How are the service charges apportioned between the different size flats? Presumably, there's a %age in each lease. Do you know what those figures are?

Fire_Fox

Assuming you expect to have one place on the board and one vote each = one sixth ownership and one sixth cost each. Your long leases which specify the proportion each flats pays for service charges and how long the lease currently is is a separate issue.

robertlondon

GDB2222 wrote: »

How are the service charges apportioned between the different size flats? Presumably, there's a %age in each lease. Do you know what those figures are?

A massive thank you :T to everyone who's lent me their thoughts on the matter so far...

GDB222:
The service charges are apportioned with the larger flats paying more than the smaller ones. The breakdown is
2 large flats each pay 20%
4 smaller flats each pay 15%

Of course with a very absent freeholder, there are no service charges paid at all - instead when there is any major expediture, it is simply split 20-20-15-15-15-15

The difficulty we have is that it's in the financial interests of the smaller flats to try and make the larger flats pay a greater proportion of the total amount. They would argue that the larger flats have more to gain. By tagging it to flat values say, it would probably mean that the larger flats end up paying more than the 20% suggested in the leasehold documents regarding service charges. Conversely it's in the financial interests of the larger flats to try and ensure that all flats pay an equal amount and this in turn would lead to all flats having an equal share of the freehold company.

And then there's the question of shares in the company!

It's a tricky matter, any further thoughts are more than welcome...

emg

I live in a block of 3 different sized flats and when we bought our freehold it was originally suggested that mine should cost more for being the bigger flat. As it turned out, one flat couldn't afford to buy in to it and so we decided to split their cost evenly between me and flat 1. The flat 1 owner was then unhappy about me owning more than 50% of the freehold so in the end we did end up splitting it evenly.

GDB2222

I would abide by 3 principles:
a) No 2 flats should have a controlling interest in the shares
b) The benefit is greater for the larger flats. For example if there is an increase in value to the flats because of the freehold being bought that will be more for the larger flats. Also, they stand to benefit most from savings in service charges (as they have to pay the larger proportion even though the work is on the whole block). Most importantly, though, I imagine you will grant yourselves lease extensions at peppercorn ground rents without charge, and these are more valuable for the larger flats.
c) In principle the freehold is not worth much once you have granted the lease extensions. However, it seems reasonable to grant shares in proportion to the amount paid.

On this basis, 20-20-15-15-15-15 seems pretty reasonable. Bear in mind that you can't force people to join in, and you can still go ahead if one person refuses. A lot of people are stretched at the moment.

You say all the flats have the same length leases. If some people had paid to extend their leases, that would need to be taken into account.

silvercar

You say all the flats have the same length leases. If some people had paid to extend their leases, that would need to be taken into account.

I agree, if one flat has a long lease the value of becoming a joint freehold owner is small, whereas if one flat has a lease less than 70 years, the value of owning the freehold (and the ability to extend the lease cheaply) is worth a lot.

Hugbubble

robertlondon wrote: »

Conversely it's in the financial interests of the larger flats to try and ensure that all flats pay an equal amount and this in turn would lead to all flats having an equal share of the freehold company.

And then there's the question of shares in the company!

It's a tricky matter, any further thoughts are more than welcome...

In my building every leaseholder has 1 equal share in the management company, irrespective of size, although service charges are relative to the square footage of the flats.

G_M

Hugbubble wrote: »

In my building every leaseholder has 1 equal share in the management company, irrespective of size, although service charges are relative to the square footage of the flats.

Having read the comments so far, I still believe this is fairest. One man, one vote.

robertlondon

Thanks for everyone's views so far...