Freehold on a flat - to buy or not?

andydakin

We own a leasehold flat in a 42 flat block on the south coast. The majority (32 I think) of the owners have recently formed a company and bought the freehold (this was in process before we bought our flat and so we weren't initially involved) and we have been invited to buy our share. As I see it the benefits are:

An extended lease, from 119 left on our lease as it stands, to 999 years
No ground rent (£150 per year)
Potential dividends on excess funds in the company (although I'm not sure where those funds are going to come from)
A small increase in the value of the property (1 - 1.5% has been suggested)

I have spoken to the chairman of the residents' company who suggests that I shouldn't need to deal through a solicitor. Has anyone got any commments/experience on whether this is something worth doing? Should I jump at the chance or avoid like the plague? I'm 50/50 at the moment.

SmashedAvacado

you technically still have to pay ground rent, although you would get some or all of this back when the company distributes its income

Also you don't get to extend the lease unless the company agrees. you will be one of 30 odd shareholders. it would only be fair on the company to get market value for the lease extension albeit that you woudl be entitled to some of the money that the company takes because you are a shareholder.

The company woudl be run by the directors who would be under a duty to act in the best interests of the freehold company. That's all the shareholders. So for example if everyone else has longer leases, its not fair that you wouldnt have to pay albeit that as a shareholder you would get a share back

Further upside, is that if a person with a shorter lease needed to extend, you would be entitled to a share of the payment they would need to make.

I would do it.

AdrianC

You shouldn't need a solicitor, no.

All you are buying is a share in a private limited company. The company owns the freehold, so there's no transfer of ownership of the freehold happening.


The freeholder (the company) can grant you a new lease on those terms at any time, but it's entirely likely they'll do so only as a benefit of being a shareholder.


Any excess funds are going to come from the return of money paid in by leaseholders, both in ground rent and in service charges, after maintenance is done.

Tom99

[FONT=Verdana, sans-serif]How much are they asking? Compare it with a statutory lease extension which will also get you £0 ground rent and a 209 yr lease. That would probably cost about £3,000 plus fees so maybe a total approaching £5,000.[/FONT]
[FONT=Verdana, sans-serif]Won't you need a solicitor to sort out the new lease? Also it will involve your mortgage co.[/FONT]

AdrianC

Tom99 wrote: »

[FONT=Verdana, sans-serif]How much are they asking? Compare it with a statutory lease extension which will also get you £0 ground rent and a 209 yr lease. That would probably cost about £3,000 plus fees so maybe a total approaching £5,000.[/FONT]

The difference is that as a shareholder in the company, you'll be eligible to vote on any decisions around the building and freehold.

NeilCr

I've been in your situation and bought in without hesitation. One of the first things we did was to waive the ground rent for everybody

Another big plus is that you can have a say in the way the block is run.

Hoploz

How much will it cost you?

I'd generally say go for it. However your ground rent is not terribly high and the existing lease is long enough for it not to affect the value when you come to sell in 3...5...even 10 years time. Enough residents are on the board already so what is done will be in everyone's interests (as opposed to some random management co on the make)

So unless it's really really cheap I don't know if I would bother.

andydakin

Thanks for the answers, folks. In answer to a couple of posters, the cost would be £4278 (based on the original marketed value of each apartment when they were first sold). Ours is towards the cheaper end of the scale, the downside of which is that our "vote" would have less clout than the owner of (say) one of the penthouses. As you say, with no legal costs, it compares reasonably to a lease extension with legal fees.

Hoploz

... But your lease doesn't need extending.

That charge is equivalent to 28 years worth of £150 ground rent. There is no benefit here.

Xenajane

Hi, I’m in a panic I’ve just had a letter asking if I want to buy the freehold for my leasehold masionette which only has 38 years lease left. They want £90,000 which no way can I afford, upstairs has 87 years left & they want £10,000. I have to reply within 28 days or it goes on open market. What happens now if someone buys the freehold. I’d like to sell the property having short lease it’s not mortgageable. I’m not very good with all this legal stuff! I can’t afford a solicitor as I’m disabled & my husbands on low income. Can anyone give me advice please.

AdrianC

Remember that a lease means you're effectively renting the flat on a very long contract - the freeholder actually owns the building. In 38 years time, when your lease expires, you no longer own your flat - ownership of it goes back to the freeholder. That's why nobody will lend money against it... Because it's very poor security for a loan - let's say the buyer doesn't pay the mortgage, and the lender has to repossess. They now have a flat on a 20yr lease. Who's going to buy that from them?



Below 80 years remaining lease, the cost of an extension goes up rapidly, because of the effect on the value of the property. It's called "marriage value". The same applies to buying the freehold.


Because upstairs has more than 80 years left, their property is easily saleable, so renewing the lease won't make anywhere near as big a difference to the value.


Your flat can be sold, but it would have to be a cash buyer, and it'll be worth a lot less than if it had a long lease. At least £80k less, because of the difference in renewal costs - but in practice it'll be an even bigger difference, because there's the hassle factor, too, and the fact that the number of people you can sell to is a lot smaller.


If you can possibly raise the £90k, then it will likely be a very good investment. But you really do need specialist advice from somebody who can know the full exact details.