Share of Freehold being optionally offered on property purchase

Matwilk

Hi All,

I am interested in purchasing a flat which is currently Leasehold. But the vendor is offering the Share of Freehold 'subject to negotiation'. Interestingly, the flat below is being sold at the same time, also with the same offer - I presume the seller is both the owner and freeholder for both the flats and is selling up.

Aside from the pros/cons of Share of Freehold (I feel on balance I'd like to have SoF) I am curious to know by how much I could/should negotiate this into any offer I make. Also what alarm bells and questions to be asked with regard to this situation?

The property is on the market at £435k. I need to check on the current remaining lease length, but I believe it's nothing unusual (90 years+)

Views/opinions greatly received.

Doozergirl

Just get it thrown in! If the lease is long (90+) then the freehold has little value. At that price, I would piddle about with a few grand here or there for the freehold.

Matwilk

Doozergirl wrote: »

Just get it thrown in! If the lease is long (90+) then the freehold has little value. At that price, I would piddle about with a few grand here or there for the freehold.

Thanks DG, I'll hopefully try to do that.

Just wondering... why does the freehold have more value the shorter the lease?

Doozergirl

Because of 'marriage value' and the income derived from extending leases. As the lease gets shorter, the lease of the flat comes closer to belonging to the freeholder again. Below 80 years, the freeholder has a claim on part of the value of the flat which increase until the lease hits 0 years and the entire leased part reverts back to the ownership of the freeholder. Above 80 years, they have no claim on any part of the value of the flat but as it approaches 80 years there would be some uplift in value in anticipation of a lease extension.

Above 80 years, the value is only based upon the yield from ground rent received each year - perhaps 10 times the amount of ground rent, probably less.

Matwilk

Doozergirl wrote: »

Because of 'marriage value' and the income derived from extending leases. As the lease gets shorter, the lease of the flat comes closer to belonging to the freeholder again. Below 80 years, the freeholder has a claim on part of the value of the flat which increase until the lease hits 0 years and the entire leased part reverts back to the ownership of the freeholder. Above 80 years, they have no claim on any part of the value of the flat but as it approaches 80 years there would be some uplift in value in anticipation of a lease extension.

Above 80 years, the value is only based upon the yield from ground rent received each year - perhaps 10 times the amount of ground rent, probably less.

Thanks. That's incredibly clear & helpful

Richard_Webster

Above 80 years, the value is only based upon the yield from ground rent received each year - perhaps 10 times the amount of ground rent, probably less.

Not just ground rent I'm afraid, but also what sum when invested at 5% compound over the remaining term of the lease, will bring in the present value of the flat.

Vincenzo

Richard_Webster wrote: »

Not just ground rent I'm afraid, but also what sum when invested at 5% compound over the remaining term of the lease, will bring in the present value of the flat.

Richard - not sure I understand your comment on this?

The ground rent is capitalised at a market rate (yield) and discounted at 5% (due to the Sportelli case) to give a present day value since the income from the ground rent is a future income. So it is just ground rent that is being capitalised.