Advice please regarding purchasing freehold

CB1979_2

hi guys right (apologies for not putting in my other thread).

I may be going into buying the freehold with the other flat owners in my building, now or in a couple of years.

However, my first question is this,

1) if I extend my lease now for say £10k, will this reduce the value the freehold if we purchase it in a couple of years?

so the freehold is valued at £200k now (assuming everything stays the same, including price) will it mean that the value will come down by £10k?

otherwise I'm thinking there's no real point in purchasing the freehold.

2) also there's currently about £30k worth of works needed on the property, again will this decrease the value of the freehold with these works outstanding?

3) if we pay for the works will this increase the value of the freehold? meaning we would pay £30k for the works now and meaning the value of the freehold would go up if we decided to buy it? if so I suppose it's best to put off the works until after the freehold is purchased.

many thanks

Chris

Doozergirl

Hiya,

In short:

a) No! Either extend your lease or purchase the freehold and then extend your lease for the legal cost only. (As freeholder you have no need to profit from lease extensions )

b) No. It will not affect the value of the freehold or only by a tiny amount if the value of the building is improved. But owning the freehold may enable you to save far more by reducing the cost of the work when you organise quotes yourself.

c) No (again)

RiskAdverse100

I'm not sure if I agree with Doozergirl.

1. The amount that the tenants will have to pay for the freehold if they decide to collectively enfranchise in a couple of years time will depend on a number of factors. One of these is the length of the leases that the freehold is subject to. If all the leases are short (ie under 80 years) then the freehold will have a much higher value than if all the leases have more than 80 years left.

However, it is the length of each individual lease that is important and so if CB1079's lease is extended now then it will make a difference to the value of the freehold, although I suspect that it will not reduce this value by anything like the same amount.

Whether to extend now or enfranchise (and then extend) in two years' time depends to some extent on how many flats there are in the building and the length of the individual leases. However, the larger the number of flats the more difficult it is to get anything agreed and my advice would be to extend now if you have the money.

2. If your landlord is less than perfect, and this is one of the reasons why a collective enfranchisement is being proposed, then you may find that when the time comes for you as landlords to carry out the works you can get them done for far less than £30k. However, there is another reason why the value to be paid might be less now than after the works are done. One of the elements taken into account in valuing a freehold is the market value of the individual flats and this will be lower if works are needed to the building - particularly external decorations.

3. For the reasons in 2, paying £30k now to have necessary works done could mean that the value of the freehold increases if the works result in the values of the individual flats increasing.

RiskAdverse100

Doozergirl

I don't know whethere I disagree with you or not, RiskAdverse! Even reading your post over again you seem to be saying much of what I think, though it may be the fact that my original post was too short. Acknowledging everything you say as useful advice, can I add:

1. If the lease is under 80 years, I had heard it was likely that the share of freehold would actually be cheaper than the lease extension. This was indeed the case when I obtained an independent valuation for our lease and share of freehold.

Even with a longer lease, the freehold holds some value, whereas a new lease has no value when you yourself are freeholder. Extending and the buying the share of freehold would also mean paying freeholders legal fees and managing agents fees twice over instead of once and they aren't amounts to be scoffed at!

3. Yes the value of the freehold would increase if the value of the flat increased. However, it would be a fraction of that improvement. If you have a professional managing agent, 30k doesn't seem to buy you much in the way of improvement!

In our case, a small block of four, our agents quoted us £13,200 for simply changing three communal windows and a door. If we'd paid that, the fraction increase on the share of the freehold would be absolutely minimal in relation to savings made on finding more reasonable quotes at around the £5000 mark!

RiskAdverse100

I take Doozergirl's point - I don't think either of us is wrong, but then again, on the facts given I am not sure if a 'correct' answer can be given!

Whether a lease extension now is going to be cheaper or more expensive than collectively buying the freehold and then extending the lease depends on a number of factors, not least the number of participants.

As the number of flats in a building increases so do the costs of buying the freehold.

With a building containing a large number of flats it can be a nightmare getting all those involved to cooperate. It is also more difficult to get a figure agreed and you are more likely to find yourselves asking the Leasehold Valuation Tribunal to determine the price to pay.

You must also take into account the landlords' legal and surveyors fees that you will also have to pay. For a complicated freehold purchase not only are the tenants' legal and surveyors fees going to be high but so are the landlords' costs.

For a small building containing, say, four or fewer flats it could be cheaper to collectively buy the freehold and then extend. For a large building it could be considerably cheaper to simply extend your lease now and in some cases it could be the case that you run out of time because you want to sell the property with a longer lease before a collective enfranchisement can be dealt with.

The simple answer to the OP's original question should really have been 'perhaps' as so much additional information is required to decide!

RiskAdverse100