Freehold on house has 12 years left - looking to buy, advice needed

daws0n_2

Hello,

My parents have lived in their house for nearly 40 years, but have never considered buying the freehold to the property until now. Nearing retirement age and having paid off their mortgage they are finally in a comfortable position to consider doing so... Naively however, they thought that the longer they lived in the property the cheaper the freehold price would be - after reading into the subject a little I have discovered that the opposite is true.. With such little time left before renewal they are in a difficult situation.

They shrugged off my recommendation of an independent survey, and contacted the land owners directly to negotiate a price. They had a visit last week from them, no measurements were taken of the grounds but the house was thoroughly inspected room by room to gauge living standards/house condition/cleanliness etc... We estimated since the small terraced property is worth around £120k, the freehold would be 10-15 thousand.

To our shock, a letter was received today with a figure almost double that! Ensuing the legals costs also we are estimating it to be around 30k! Unfortunately none of us are in a position to afford this financially, and have been told they only have 3 months to decide/commit. After that, a new survey will need to be completed and the price will go up. Also, they need to wait another 2 years for another opportunity to buy.

Our only other alternative is to rent the land once the freehold has expires, the owner verbally advised that this could cost anything from £15-£30 per week. A huge leap from the £2 per annum they are currently paying!

Despite a lot of preparation and money saved by, they find themselves in an awkward and quite scary situation. Can anyone advice what best action to take? My first instinct says to negotiate a lower price, but is this successful in situations like this? I know nothing about land valuation, but 30 grand does seem like a high asking price - is this the going rate nowadays?

Any advice or help will be much appreciated.

property.advert

It is a long time since I covered this subject but I understand there were fairly standard calculations for the marriage value of the lease and freehold.

One thing to point out which I came across as a director of a management company covering around 150 flats was the vast fluctuation in valuations of freeholds with, in my case, substantial years outstanding on the lease. As it is essentially a fixed income asset, much as a government bond, the lower interest rates go, the higher the value and vice versa. Thus, many were sold on to less scrupulous companies who are in it to make money and confuse and rob people in some cases. When interest rates rise, the value of these assets will fall substantially.

How this pans out with near dated leases I do not know but it would still have some effect.

I know that my parents bought their freehold for a few hundred, perhaps £250, after owning the property on a lease for over 25 years, where the ground rent was maybe £12 per annum. There was certainly no mention of XXX thousands for sure.

ILW

£30k sounds pretty generous, the freeholders only have to hang on for 12 years and they own a property worth £120,000. (or more if the value increases).

PasturesNew

http://www.lease-advice.org/information/faqs/faq.asp?item=117

And http://www.lease-advice.org/publications/documents/document.asp?item=15 - scroll down to "Gathering Information" and it'll take you through the calculations, with some worked examples.

DVardysShadow

Bite the bullet and pay. It is a small price to pay to avoid £120,000 slipping through your fingers in 12 years time.

daws0n_2

Thanks for the advice everyone. We have contacted the lease hold advisory service who have also said the same thing - if they don't pay, there could be far more serious consequences in the near future once it expires.

In the meantime, I have contacted a local land valuer to see if we can get an independent high/low valuation. I really hope we can barter if the valuation works out considerably cheaper, but at the same time we don't want the land owner withdrawing their offer if we attempt to counter it.

poppysarah

Can the lease be renewed? Suspect specialist advice is needed.

daws0n_2

I don't know the details, but yes he did advice that a 50 year extension could be another option - however, have given no estimate as to the cost of this or as to when this would be offered. Our worry is that once the lease has expired we are over barrel so to speak, and they can charge whatever they please for renewal or weekly ground rent etc...

Doozergirl

daws0n wrote: »

I don't know the details, but yes he did advice that a 50 year extension could be another option - however, have given no estimate as to the cost of this or as to when this would be offered. Our worry is that once the lease has expired we are over barrel so to speak, and they can charge whatever they please for renewal or weekly ground rent etc...

I really don't want to frighten you further but in the usual circumstances, the freehold does not simply relate to the land that the house sits on. When you purchase leasehold, you are not buying the house but the right to live in that property from the freeholder (landlord). It is in effect a very long tenancy - leasehold property, where the lease is very long will attract near enough the market value of a similar freehold property because the expiry of the lease would usually be more than a lifetime away. But when it does run out, the ownership of the entire property reverts to the freeholder and rent is payable on the entire house, not just the land! The rent certainly won't be as cheap as £15-30 a week.

I would advise having your own valuation carried out, but I would not be surpised if it comes in at higher than £30,000. You need to speak to a solicitor or talk further to the LAS so you completely understand the existing lease and what it covers. And also find a surveyor who specialises in lease valuations - not very common.

PasturesNew

Doozergirl wrote: »

I really don't want to frighten you further but in the usual circumstances, the freehold does not simply relate to the land that the house sits on. When you purchase leasehold, you are not buying the house but the right to live in that property from the freeholder (landlord). It is in effect a very long tenancy - leasehold property, where the lease is very long will attract near enough the market value of a similar freehold property because the expiry of the lease would usually be more than a lifetime away. But when it does run out, the ownership of the entire property reverts to the freeholder and rent is payable on the entire house, not just the land! The rent certainly won't be as cheap as £15-30 a week.

I would advise having your own valuation carried out, but I would not be surpised if it comes in at higher than £30,000. You need to speak to a solicitor or talk further to the LAS so you completely understand the existing lease and what it covers. And also find a surveyor who specialises in lease valuations - not very common.

I am posting just to point out to the OP that the above person knows stuff - and knows what they're talking about, so treat the above as solid information and advice you can rely on.

daws0n_2

Thanks Doozergirl, at least I now know what we're up against - why my folks did not look into this years ago is beyond me...!