Buying Share of Freehold Advice

rxg111

Hi,

I own a leasehold flat in a block of 6 flats, and a neighbour has approached me about about buying a share of the freehold. There are at least 3 other leaseholders who are interested, since they all have leases of 70 years or less.

However, I already extended my lease 4 years ago - I got the statutory 90 years extension (taking me to 163 years currently) and peppercorn ground rent. This cost several thousand pounds, and I thought that would be the end of my lease worries.

Now I don't know whether to include myself in with the other leaseholders (we all get on pretty well and would appoint a managing agent to run the building), or to stick with my current situation.

My neighbour tells me it would cost £1000 each to have a valuation performed, and then we would need to pay legal costs (ours and the freeholder's). I'm assuming the costs to the other leaseholders will be considerably more given their need to pay the freeholder 'marriage value'.

Can anyone give me any advice on this? Should I let them carry on and continue with my lease of 163 years?

Thanks in advance!

squoog

Last year I bought a share of freehold in a block of 14 flats. The valuation cost £1000 + vat between all of us.
Only 7 people joined out of 14 and some had already extended leases. The solicitor who dealt with it by setting up a company (supposedly the easiest way to deal with a shared freehold) for us, also worked out the cost split fairly.
The people who had a long lease paid considerably less than those of us that had short leases. The buying of the freehold didn't include the cost of our extending the leases, but gave us the right to do so. The freehold cost us £35,000, with 3/7 of us having leases only 53yrs remaining. The costs were split 14 ways and one shareholder bought the 7 extra shares. Legal costs were about £5000. HTH

rxg111

Thanks squoog, that's helpful info. I realise I've been lumping leasehold extensions and buying a share of the freehold together, when they're actually two separate things. I also think the valuation estimate that my neighbour's got is too high (£6000, i.e. £1000 each for 6 flats).
Is your property in London?

squoog

Property in West Sussex and used a Brighton surveyor. Is there anything you might gain, such as use of loft space or cellar space if you buy freehold? Are you paying high charges at the moment? What is the main reason for buying?

rxg111

We are paying high service charges at the moment. I think this would be reduced significantly if the block was self-managed. But I guess I would benefit from that even if I didn't buy a share of the freehold.

I'm also thinking of selling in the near future. And it doesn't look like share-of-freehold increases the value of the flat very much if there is a long lease anyway.

I think I'm talking myself out of joining the s-o-f purchasers, but I want to be sure I'm not making a mistake!

Richard_Webster

Logically you should pay less for your share of the freehold - but try telling the others that!

Worth doing if you can pay a reasonable price given that you have a longer lease.

de1amo

there is a lot of admin and costs regarding running a freehold-it is a company within itself and has to be registered with companies house! i paid 7k as my 1 12th share but it was well worth it to be in control of the block and reduce service charges.
İn the long term we have got planning permission to build another level on the block so you can gain in other ways!--apart from that the block has improve immeasurably under the self managing scheme!

rxg111

Richard - you've raised an interesting point. After the freehold is valued and a price agreed, everyone may assume it should be split equally amongst the participating leaseholders. Once the freehold is bought, they can then grant themselves free long leases.

If I do choose to participate, how do I negotiate a smaller share of the freehold cost given my current long lease?

de1amo

i would offer the freeholder less based on the idea he has already received funds for extending the lease--i doubt the neighbours will want to pay more for their share of the freehold given that they are buying equal voting rights on the freehold!

Richard_Webster

Richard - you've raised an interesting point. After the freehold is valued and a price agreed, everyone may assume it should be split equally amongst the participating leaseholders. Once the freehold is bought, they can then grant themselves free long leases.

If I do choose to participate, how do I negotiate a smaller share of the freehold cost given my current long lease?

With difficulty!

You could try asking for a breakdown of how the figure was arrived at - the freeholder should have attributed a lower value to your flat because of the longer lease.

Leasehold_Solutions

rxg111

With a 160 year lease, you have most of the benefits of enfranchisement. You need to ask the question WHY would you want a share of freehold? You did not choose to do that along with your neighbours 4 years ago so I guess the reasoning has not changed.

The main reasons of flat owners to consider buying the freehold include a poor management company, wanting to kick out a bad freeholder or simply wanting to add the value to the property by having share of freehold.

The last of the 3 you effectively have. If your neighbours go ahead with the transaction, you will have the benefit of the other two (if you don't already).

My view is that most estate agents and buyers would not value your flat much higher than it already would be valued (with the extended lease) if you were also part of the freehold company.

More is the point, you have quite a negotiation tactic: the neighbours will have to pay for the cost of your share of the freehold anyway (if you don't come aboard). So they should be grateful for any contribution that you might make towards their freehold purchase. It seems it is they who are motivated to make the purchase, not you.

Richard is right, when they pay for their valuation then it will include presumably the proportionate costs for each flat and it will become obvious that you should pay a LOT less than they each should with their much shorter leases.

If you had an advisor solely acting for you, I am guessing they would advise you to play hardball and not to fund the valuation and legal fees for the freehold acquisition at all. You can always offer to buy your share once they have gone through the transaction anyway. Although they might not be so predisposed at that point to negotiate. A more fair-minded advisor might suggest you take a more co-operative approach but still keep balancing your own personal interest with the group interest.