Received "right of first refusal" notice, while selling

thelem

Background
I've just received a Section 5B notice that basically says my freeholder is looking to sell the freehold and is giving the leaseholders the right of first refusal to purchase the freehold. My flat is currently on the market, so I'm not actually interested in the freehold itself, but I am interested in how it will affect my sale.

My flat is on the market for £270k and I have 138 years remaining on my lease with a ground rent of £125 per year. The other two flats in the building have similar leases. The freehold will be sold at auction on 28th March 2018 and we were served this notice today and have two months to decide if we will accept the offer.

There is no explicit price given in the offer, instead it says:
"The consideration for the Property will be as agreed at the auction together with a contribution of £750 + VAT for legal costs and reimbursement of any disbursements incurred in relation to items included in the auction pack for the property"

Questions

1. Is purchasing the freehold something I should be considering? What effect does it tend to have on sale prices?
2. Is this process likely to cause problems with the conveyancing for my sale?
3. Is it legal to serve this notice with such an undefined price. We can't know what price it's being offered for until the auction, but which point it is too late to purchase the freehold.

eddddy

thelem wrote: »

Is purchasing the freehold something I should be considering? What effect does it tend to have on sale prices?

Is this process likely to cause problems with the conveyancing for my sale?

The sale of the freehold might be a concern for your prospective buyer.

The new freeholder will have no track record - the buyer won't know how well the new freeholder will maintain the property, whether the new freeholder will try to rip-off the leaseholders etc.

thelem wrote: »

Is it legal to serve this notice with such an undefined price. We can't know what price it's being offered for until the auction, but which point it is too late to purchase the freehold.

It's not too late. If the highest bid at auction is, say, £10k - the freehold will be offered to you (the leaseholders) at £10k.

If you turn it down, the highest bidder at the auction gets it for £10k.

There's some info here: https://www.lease-advice.org/advice-guide/right-first-refusal/ (See: Section 5B – where the landlord intends to dispose by auction.)

thelem

Thanks. That makes more sense. It sounds like we don't really have a decision to make until the date of the auction so long as we:
1) Send a letter with 2 months from today saying we are interested.
2) Send a letter within 3 months from today appointing a single person to represent our interests.
3) Send a letter shortly before the auction saying that we are still interested.

If we do that, then the freeholder has to offer the freehold to us at the price it reached in the auction (if it reached the reserve).

moneyistooshorttomention

...and, if you decide you're not interested in buying the freehold, then the very first question a prospective buyer of your place should/might ask is "Will the ground rent remain a pretty nominal one if the freeholder changes/because the freeholder has changed?".

I expect the answer to that question will be "no" if it's some stranger that buys the freehold.

Having read what I've been reading on here over the years - as a potential buyer I'd lose interest until the situation was resolved one way or another - as I'd wait to see the outcome and would be worried the outcome would be "A firm trying to make a profit from the place".

thelem

The ground rent is specified in the lease and will remain under £250 per annum for the full duration of the lease. How would the new freeholder change this? It might be an issue when the lease needs to be extended, but that won't need to be done for about 40 years.

getmore4less

My flat is on the market for £270k and I have 138 years remaining on my lease with a ground rent of £125 per year. The other two flats in the building have similar leases.

Only 3 of you time for a meeting,

thelem

getmore4less wrote: »

Only 3 of you time for a meeting,

Definitely, I'm just trying to understand our options so such a meeting can be useful. One of the flats is rented and I think might actually be owned by the freeholder, so that might make the transaction interesting. I'm aware that the other two flats can purchase the freehold just between ourselves if we want.

eddddy

thelem wrote: »

If we do that, then the freeholder has to offer the freehold to us at the price it reached in the auction (if it reached the reserve).

Yes.

Just for your interest, here's an example auction listing, that warns bidders that the highest bidder might not get to buy the freehold - it may be 'snatched away' by the leaseholders:

Auctioneer's Note

Section 5(b) Notices under the Landlord & Tenant Act 1987 (as amended) have been served and the leaseholders have reserved their rights under the legislation.

Link: http://www.rightmove.co.uk/property-for-sale/property-36040257.html

And here's an example where the leaseholders haven't taken up that right - so the highest bidder will definitely get the freehold :

Auctioneer's Note

Section 5(b) Notices under the Landlord & Tenant Act 1987 (as amended) have been served and the leaseholders have not reserved their rights under the legislation.

http://www.rightmove.co.uk/property-for-sale/property-44761176.html

moneyistooshorttomention

thelem wrote: »

The ground rent is specified in the lease and will remain under £250 per annum for the full duration of the lease. How would the new freeholder change this? It might be an issue when the lease needs to be extended, but that won't need to be done for about 40 years.

40 years is a span of time within the lifetime of many people and a buyer of yours would possibly have in mind to sell onto another buyer some years later on the other hand.

thelem

moneyistooshorttomention wrote: »

40 years is a span of time within the lifetime of many people and a buyer of yours would possibly have in mind to sell onto another buyer some years later on the other hand.

40 years is a long time for an investment though. If you buy a leasehold property today, you shouldn't be surprised if the freeholder has changed in 40 years time. Even if the named freeholder hasn't changed, their behaviour may well have. If you're concerned about who the freeholder is going to be in 40 years time, you probably shouldn't be buying a leasehold property.