Freeholder of New Build Flat Disposing of Freehold

cheap-information

Hi everyone,

Around 6 months ago I bought a Flat for £300,000 in a block containing 23 other flats.

The Ground Rent is £350/year (doubling every 25 years) and there are 249 years on the lease to go.

Today, I received a notification from the Freeholder that they are wanting to dispose of the freehold. Because of this, they need to give the current leasees the first refusal which they have done.

The majority of the owners of the other flats are located in Hong Kong and a few in the UK.

The Freeholder is asking £252,000 for the disposal. The value of all the flats is probably close to approaching £5.5 to £6.0 million. This is around £10,500 each.

Just a few questions:

1) Is this value reasonable?
2) If more than 50% accept the price, do all flats (even if not in agreement) have to find the money for the freehold or would the people wanting to buy have to purchase the non-buyers' shares also?
3) I take it if I am the freeholder, I would stop paying the Ground Rent?

Any advice would be much appreciated!

AdrianC

cheap-information wrote: »

Just a few questions:

1) Is this value reasonable?

<shrug>
If they're happy to sell it for that, and somebody's happy to pay it - then it's reasonable.

2) If more than 50% accept the price, do all flats (even if not in agreement) have to find the money for the freehold or would the people wanting to buy have to purchase the non-buyers' shares also?

No.

3) I take it if I am the freeholder, I would stop paying the Ground Rent?

You would have two hats. One as freeholder, one as leaseholder. You, wearing your leaseholder hat, would still have a contractual obligation to pay you, wearing your freeholder hat, the money.

Unless you buy the freehold 100% yourself, you are sharing that freeholder hat with other people.
You could always sell either hat - the contractual obligation would pass with the hat.

NeilCr

I was involved with buying the freehold at my previous flat. It was a block of 15 and one of the first decisions we took was not to charge ourselves ground rent!

ETA. AdrianC is right about the price.

If it helps at all, though, I can tell you we paid £50k for the freehold. This was about 15 years ago and the prices of the flats were from £149k -£225k. The block is in South London

eddddy

cheap-information wrote: »

2) If more than 50% accept the price, do all flats (even if not in agreement) have to find the money for the freehold or would the people wanting to buy have to purchase the non-buyers' shares also?

You need to look at it sightly differently.

The price of the freehold is £252k. You can raise that £252k whatever way you like.

e.g. One leaseholder could pay 77% of it (and own a 77% share of the freehold) and each of the other 23 leaseholders could pay 1% each (and each own a 1% share of the freehold).

However, the ideal approach is that each leaseholder pays 1/24th and therefore owns 1/24th. But see below.

cheap-information wrote: »

3) I take it if I am the freeholder, I would stop paying the Ground Rent?

The freeholders can agree to waive ground rent, or vary the leases to make the ground rent zero.

BUT....

cheap-information wrote: »

The Ground Rent is £350/year (doubling every 25 years) and there are 249 years on the lease to go.

Is everybody else's lease/ground rent the same as yours?


e.g. If somebody else's ground rent is £100, they have less to gain than you from reducing ground rent to zero. So they should pay less for their share of the freehold.

These factors should be used to adjust how much each leaseholder pays. i.e. Pay 10% of £252k and get a 10% share is no longer fair.

And if somebody owns a smaller share (or zero share) of the freehold, presumably they don't save their full ground rent.

jimbog

In case you were not aware, there could be ramifications if you didn't buy the freehold and it was then sold on to an outsider:
https://www.theguardian.com/money/2016/nov/05/ground-rent-scandal-engulfing-new-home-buyers-leasehold

G_M

cheap-information wrote: »

1) Is this value reasonable?
Maybe but maybe not. However, if you (all) decline to buy it, the freeholder cannot sell to anyone else for less that that (unless they then offer it to you again at the lower price).

2) If more than 50% accept the price, do all flats (even if not in agreement) have to find the money for the freehold or would the people wanting to buy have to purchase the non-buyers' shares also?
No one can be forced to buy, so only those who agree would become joint owners and have to share the cost.

3) I take it if I am the freeholder, I would stop paying the Ground Rent?
No. You would still own the lease to your flat, and have to pay the ground rent to the freeholder. Of course, as a joint owner of the freehold, you'd be paying yourself (and the other joint owners). The others would similarly be paying themselves, and you.

Any advice would be much appreciated!

Read

http://www.lease-advice.org/advice/find-the-right-information-for-you/?step-option=61

cheap-information

Thanks very much for the information.

I will have to see what the other owners have to say, sadly they are mostly located in Hong Kong and so contact will be difficult.

About the story of the flat being zero, I don't think that will be an issue as my lease states it is doubling every 25 years instead of 10 and this cannot be changed, regardless of who the freeholder is?

Secondly, I know that it is better for myself to own part of the freehold but what are the negatives of somebody else owning it? Is it only the fact that they can choose the managing agents and choose expensive insurance?

AdrianC

cheap-information wrote: »

About the story of the flat being zero, I don't think that will be an issue as my lease states it is doubling every 25 years instead of 10 and this cannot be changed, regardless of who the freeholder is?

Cobblers. The freeholder can make whatever agreement they wish with the leaseholders to supercede the old agreement.

NeilCr

cheap-information wrote: »

Secondly, I know that it is better for myself to own part of the freehold but what are the negatives of somebody else owning it? Is it only the fact that they can choose the managing agents and choose expensive ground rent?

They will set the service charge and budget and can decide what needs to be done or not done. If you owned the freehold then that would in your remit (when I say you I mean the group)

In my experience, in these situations, as the freeholder doesn't live there they aren't that interested in getting things done - which you guys would be .

As you say the freeholder employ the managing agents. One of the first things that happened when we took on the freehold was that we changed agents. In general, I've found that getting managing agents to do things quickly is difficult. However, if they know you have the power to get rid of them it can concentrate their minds. And you do build up more of a connection with them which can help

You do get to make your own decisions - we had a situation with a leaseholder where I think an absentee freeholder would have made a different decision to us. We actually knew the circumstances

There are probably other things but this is top of my head stuff

On the other hand if you get a good freeholder and managing agent it can work well -and then you don't have the hassle and responsibility. Having been in both situations, though, I know which I prefer

cheap-information

AdrianC wrote: »

Cobblers. The freeholder can make whatever agreement they wish with the leaseholders to supercede the old agreement.

Is this true? Surely it is impossible to change a lease without the agreement of the leaseholder?

AdrianC

cheap-information wrote: »

AdrianC wrote: »

Cobblers. The freeholder can make whatever agreement they wish with the leaseholders to supercede the old agreement.

Is this true? Surely it is impossible to change a lease without the agreement of the leaseholder?

The nice thing about making an agreement with somebody is that both people agree to it. There's a bit of a clue in the name.