Buying a freehold

keke129

Hi I am a FTB and I have my offer accepted on this Victorian conversion leasehold property.

The property is a first-floor Victorian conversion as I said it was marketed as a leasehold property with 95 years of lease left. The vendor is a freeholder of the entire property, and we asked him if he would like to sell us a share of freehold, as we are considering a loft conversion in the future. He said that he will need to ask the ground floor owner if they would be willing to buy a freehold (by law) if they say yes, then he will split it into two and we can have a share of freehold, if they say no, then he will sell the entire freehold to us.

If I could get a freehold or a share of freehold as a part of the sale (and get a mortgage to cover the fee) it will be great. Yet I am not sure if it is possible to buy a freehold at this stage, I've heard that I have to own a property for two years in order to buy a freehold, and also the neighbor (in my case the ground floor owner) should agree to get a share of freehold with us. Am I missing something? I am bit confused now, can someone give me an advice?:(

eddddy

The freeholder can choose to sell you the freehold - there's no problem with that.

Although the freeholder (probably) has to give the leaseholders the 'right of first refusal'. i.e. They could decide to buy it, and snatch it away from you.

See: https://www.lease-advice.org/advice-guide/right-first-refusal/



(Also, you sound a little bit confused about the concept of 'share of freehold'. TBH. it's a bit of a misleading description. Essentially, it means that the leaseholders club together and buy the freehold.
See: https://www.lease-advice.org/advice-guide/ce-getting-started/ )

keke129

Thanks edddy what a clear post!

My understanding of your post is:
1. I can buy it now, as a part of a property sale: but only if the leaseholder of the ground floor doesn't want it. The freeholder should ask them first by law.

2. We can't buy only our share of freehold from the freeholder. In order to buy a share of freehold, the groundfloor leaseholder should buy a freehold with us.

I was hoping to buy it now and include it in my mortgage deal, As what he is offering is a fair amount.
However, it seems to be more complicated than I expected. If the ground floor owner refuses to buy a freehold and I get to buy it, does it mean that I will be buying a freehold property? or does it remain as a leasehold property? It is important as I am getting a mortgage, a lender will be less interested in giving a mortgage to a freehold property.

da_rule

You also need to consider that if you become a freeholder (whether solely or jointly) you will be responsible for performing any freeholder covenants in the lease. This probably isn't so much of a problem if all leaseholders are joint freeholders but can become an issue if you are the sole freeholder. You will be responsible for service charge accounts, s.20 consultations, carrying out works and insuring (depending on the terms of the lease), plus anything else you are obliged to do under the lease.

Lenders are perfectly happy lending against leasehold only (providing the terms of the lease are sufficient). Adding the freehold may complicate matters.

There are some advantages to owning the freehold (especially solely), in that you can amend your lease by making it longer, thus making it more marketable in the future.

A possible alternative idea may be to purchase the freehold through a limited company. This has a number of advantages:
1) You can offer to sell the other leaseholder shares in the company and appoint them as a director (in exchange for a payment);
2) You limit your personal liability should anything go wrong;
3) In the future, you would probably not have to offer the freehold to the other leaseholders when you want to sell it, as you could instead sell your shares in the company, this means that the company remains the owner but the owners of the company change.

G_M

And if you and the ground floor leaseholder jointly buy the freehold, that does not alter the terms of the lease you are buying for the upstairs flat.


The extent of that does not alter (ie the boundaries of what the upstairs lease includes/excludes.) So if the upstairs lease does not currently include the loft, you cannot just unitalaterally undertake a loft conversion!

'The Freeholder' (ie you AND the downstairs owner) must grant permission.

It is likely that your joint freeholder downstairs will sayto himself "this loft conversion will dramatically increase the value of the upstairs lease. Why should that guy upstairs get this valuable extra bit of real estate for nothing? I think I want half the value of the loft conversion in exchange for my agreement."


It would be fair, therefore to calculate that

* the loft conversion will add, say, £50,000 to the value of the upstairs lease
* it will cost, say, £10,000 to do the conversion
* so 50K - 10K = £40K divided by 2 = £20K
* so it would be fair for you to pay £20,000 to the downstairs joint owner of the freehold.

zagubov

G_M wrote: »

It is likely that your joint freeholder downstairs will sayto himself "this loft conversion will dramatically increase the value of the upstairs lease. Why should that guy upstairs get this valuable extra bit of real estate for nothing? I think I want half the value of the loft conversion in exchange for my agreement."


It would be fair, therefore to calculate that

* the loft conversion will add, say, £50,000 to the value of the upstairs lease
* it will cost, say, £10,000 to do the conversion
* so 50K - 10K = £40K divided by 2 = £20K
* so it would be fair for you to pay £20,000 to the downstairs joint owner of the freehold.

That makes it sound wiser to think about buying it as a company and then granting yourself necessary permissions and lease extensions before offering shares to the people downstairs.

keke129

Thanks everyone, really good points to think about..

I can't afford to buy a freehold in cash at the stage, so I was hoping to add a freehold fee on the mortgage. However, Reading your replies makes me reluctant to do so as it sounds like too much responsibility and risk (especially having a share of freeholder onboard) Maybe I should rather negotiate to include a loft space in the lease, and buy it as a leasehold property.