Worth buying freehold?

Boyley

Hi,

Looking for a bit of advice from the experts here

I have read the comprehensive guide to buying the freehold for a property on here but thought I'd ask for any advice after giving some specifics.

I own a new build one bed flat with no mortgage to pay and 120+ years left on the lease, currently let. There are 24 flats in the building including 8 housing assoc/shared ownership flats

The developer and block manager has recently handed over the management of the block to the residents and I am one of the directors of the management company. We have appointed the original agent of the developer to manage the block for us independently of the developer as there were no problems to date with management and price is fair.

The developer who still owns the freehold now wishes to sell and understandably would rather sell as a whole rather than individually, preferably to a management company. Service fees range for 1000 -1250 for 1 & 2 beds respectively inc £250 ground rent.

The majority of resdients cannot afford to buy the freehold or are not interested so it is unlikely that we will be able to pool resources and buy together.

My first question is should I be concerned if the freehold is sold off to a management company?

2) Is it worth me buying the freehold anyway considering the length of time left on the lease? I imagine the developer is looking for £60k plus

3) Are they entitiled to £250 per year ground rent from each flat only?

4)Do we as the directors of the management company still retain control of expenditure?

Many thanks in advance.

katejo

Boyley wrote: »

Hi,

Looking for a bit of advice from the experts here

I have read the comprehensive guide to buying the leasehold for a property on here but thought I'd ask for any advice after giving some specifics.

I own a new build one bed flat with no mortgage to pay and 120+ years left on the lease, currently let. There are 24 flats in the building including 8 housing assoc/shared ownership flats

The developer and block manager has recently handed over the management of the block to the residents and I am one of the directors of the management company. We have appointed the original agent of the developer to manage the block for us independently of the developer as there were no problems to date with management and price is fair.

The developer who still owns the leasehold now wishes to sell the leasehold and understandably would rather sell as a whole rather than individually, preferably to a management company. Service fees range for 1000 -1250 for 1 & 2 beds respectively inc £250 ground rent.

The majority of resdients cannot afford to buy the lease or are not interested so it is unlikely that we will be able to pool resources and buy together.

My first question is should I be concerned if the leasehold is sold off to a management company?

2) Is it worth me buying it anyway considering the length of time left on the lease? I imagine the developer is looking for £60k plus

3) Are they entitiled to £250 per year ground rent from each flat only?

4)Do we as the directors of the management company still retain control of expenditure?

Many thanks in advance.

I think you mean "buy the freehold" not the leasehold. You already have a lease. I can't advise on your case as I have never lived in a large block. Mine was just a maisonette.

patman99

If you are all jointly in control of the site (you indicate that this is so due to you being elected as a Director), then it would be the company formed by the residents who would purchase the freehold.
The ground rent could then be used to pay for the loan taken-out to purchase the freehold.

Once the loan is paid-off, the ground rent can then be reduced to a peppercorn rent (say, 1p per annum).

Once the freehold has been aquired then the resident-owned company can then decide to charge a flat per-property ground rent and service charge (this is to cover repairs, block insurance, cleaning etc.).

You are correct to be worried about a non-resident-owned Management Company buying the freehold. They could jack-up the ground rent every year by any amount they so wished and as owners of the building, charge any repairs to the leaseholders.
Your fellow residents need to be informed about the consequences of not being in joint charge of the company that ultimately owns the freehold.

Boyley

Thank you patman99.

There are 5 directors in total. We were infomed this was a reasonably positive uptake for a block of this size! Some leaseholders were simply not interested in getting involved, some were happy with the five of us holding thre fort so to speak.

The management company doesnt have enough money to buy the freehold outright, but clearly this is the best scenario. We are also responsible for chasing up service charge arreas etc (not an easy task in itself with fellow neighbours).

You have highlighted my biggest concern, that of an external management company haveing control over ground rent charges.

patman99

Another advantage of a resident-owned company is that you can then appoint a management specialist company to do the day-to-day running of the site.

I don't know where you are based, but if you are in East Anglia I can recommend PMS Colchester Ltd (https://www.flatmanagers.co.uk).

If I where you, I'd put a note through every door inviting people to a meeting to discuss the issue. There are several websites offering advice on how to set up a company in order to take-up ownership of the site freehold. It would also be worth asking the freehold owners to give you a selling price & to then look at finance options so you all go in with your eyes wide open.

BubbleHunter

The Ground Rent will be fixed in the Lease. The Freeholder can not 'jack-up the ground rent'. You already have a Residents management company and whilst any Freeholder could potentially look to take the management over, it would be highly unlikely (as long as you're doing a good job) but you could apply to have the Management official placed in the hands of your own Management company under the Right to Mange scheme if they did.
The main Question therefore should be, How long do you intend to keep the Flat? Your suggested figure of £60k is 10 years purchase. If you are likely to sell within 10 years then it may not be worth buying the Freehold. If you are keeping the Flat for longer than 10 years it is probably worth buying.

Boyley

BubbleHunter wrote: »

The main Question therefore should be, How long do you intend to keep the Flat? Your suggested figure of £60k is 10 years purchase. If you are likely to sell within 10 years then it may not be worth buying the Freehold. If you are keeping the Flat for longer than 10 years it is probably worth buying.

Many thanks for your advice BubbleHunter. I should have been a little clearer, the figure of £60k (+/-) is for the entire block freehold, not just the one flat. I have no intentions to sell the flat any time soon, I am building a portfolio.


patman99 - thank you also; we do already have residents management company and we have appointed a manager for the day-to-day running, we just don't own the freehold.

kmmr

Sounds like a good investment to me. If you can buy it yourself I would, or set up a little consortium with those that are interested. I have no idea of the legalities though - but if people aren't interested and you are then there must be a way.

The ground rent should be separate to the maintenance charges. The £250 is pure income, and the other £1000 is set aside for charges/maintenance. On that basis there is £6k income on a £60k investment. 10% return is excellent in these low yielding times.

You can increase that by adding in fees for dealing with requests for modifications, or dealing with requests when people are buying and selling the flats. And in a while (30 years) you will start to see income from lease extension. But then you would be one of the evil Freeholders! Although I think a reasonable charge for your time is fair enough.

I believe you should always take the chance to buy your freehold. It just reduces the risk of you getting a dodgy external freeholder who really will try to squeeze you for all its worth.

kmmr

I don't think you want the management company to buy the freehold though.

If I understand it correctly you want the following:
Set up a new company. Boyley Freehold Ltd (BFL). This company has, say, 5 directors. These 5 directors contribute £12k each, and then BFL uses this cash to buy the freehold.

Ground rent is then paid to BFL as freeholders.

BFL, with the agreement of the leaseholders, contracts out it's management responsibility to a management company (MC). MC issues annual maintenance charges to the residents.

IANAL - so I think I have missed out some statutory steps, especially when buying the freehold. You (or rather, the current freeholder) have to get agreement from the leaseholders I believe, or at least give them the option to respond.

Boyley

kmmr wrote: »

IANAL - so I think I have missed out some statutory steps, especially when buying the freehold. You (or rather, the current freeholder) have to get agreement from the leaseholders I believe, or at least give them the option to respond.

The current freeholder is yet to play his cards, I am waiting on an email and the confirmation date of our next meeting where it will be discussed in more detail, so no steps missed thus far! I am just gauging interest from other leaseholders at the moment.

Are the housing association and shared ownership residents also obliged to pay the £250 ground rent?

kmmr

I don't see why not. If the lease exists that says the leaseholder has to pay £250 per annum, then whoever holds it (private or government) is obliged to pay it.