Reasonable freehold price for maisonette

vassag0

Hi,

I have bought raised ground floor two level split meisonette. Ground apartment has whole garden and front parking. Lease is 107 for my apartment and ground floor 130+ years. Ground rent 100 pounds each doubling every 25 years to 1600, from 2029 it will be 200 pounds. Freholder offered me to buy a whole freehold to be a Sole freeholder for 26k.
Also I'm going to do a lot of alterations inside and loft conversion, so freeholder for sure will want a premium for all changes.
1. How do you think is it worth to buy a whole freehold for 26k in described scenario? 
2. As freeholder told me the asked price - is there any chance that I can renegotiate to reduce it? This is a freehold management company, so this is their business.

Thanks for your advices in advance.
Kind regards,
Nikita

vassag0

And total cost of two apartments is around 500k at the moment.

FaceHead

Yes you can negotiate, so your answer should be 'here's a counter offer'. Don't be accepting their first offer. Who pays for the solicitors' fees is up for debate, so can be part of the negotiations. 

Who owns the other flat in the building? They may be interested in buying with you so both have share of freehold. Having share of freehold will increase the value of both flats. Being the sole freeholder for two flats may turn off some buyers. 

Being a freeholder isn't all sunshine: you do have some responsibilities, so make sure you understand what the ground floor flat can ask of you.  You need to offset these costs and insurances against the avoided ground rent and rent received from the other flat to decide if it's a good idea.

Based on some back of evenlope sums, it seems a bit pricey. I don't know how people value freeholds, but I took the payments you'll make over the life of the lease and discounted them at 3% back into today's money, valuing it at just over 7,000 for each flat. So that's 14,000 less the liability of insurances and repairs. You may avoid other premiums, but I'd be tempted to gets some more opinions and throw back a 14,000 counter offer. 

princeofpounds

You don't give one of the key variables, which is the approximate value of your property and that of the next door property. 

Yes, you can often negotiate. Often the first offer you get is high, like any sales negotiation, but occasionally you get a freeholder who will just offer at fair value and want a yes/no answer, so we can't assume anything.

If you were an individual householder buying a freeholder for your house, or if you were a flat owner buying the freehold of the block in conjunction with the other residents, then you would have access to the 'statutory process' to buy the freehold via tribunal. This process includes a valuation formula that sets a price. So in those circumstances you can often negotiate down close to that level, as the freeholder knows you can get that price if you pay the legal fees to take it to Tribunal. (I say close to because it costs less in legal fees and is more convenient to acquire the freehold through an informal negotiation, so a small premium for that can still exist).

However, your situation is different, because you cannot access the deal you are considering via the statutory process as you are not buying together with your neighbouring leaseholder. So it's just a plain old negotiation. Having said that, I would not be surprised if the freeholder is still willing to sell for something closer to the statutory price because it would not take much work for you to loop in your neighbouring leaseholder.

You also have to consider what the freehold is worth to you. You will be able to award yourself lease extensions for free, and you can receive a payment when your neighbour extends, but you both already have quite a long lease anyway so that's not worth much more than a few grand. You can award yourself permission to extend etc. (subject to not infringing the rights of your neighbouring leaseholder to use the communal space), that will probably save you a grand or two in fees for consideration and save some headache. You will pay yourself ground rent, but also receive that from the neighbour - £200 a year in income could be worth 5-10k, depending on what capitalisation rate you use. Plus you will have more control over building management, which can have big intangible benefits, but will have to do the administrative work (which to be frank, the £200 a year in savings may not even cover the time taken).

eddddy

You're free to negotiate the price, if you want to.

You mention a loft conversion - at the moment, is the loft demised to you? i.e. is it included in the lease on your maisonette - or does it 'belong' to the freeholder?

If the freeholder currently 'owns' the loft, you'd become the 'owner' as part of the freehold purchase - so you need to consider that in deciding how much you want to pay.



Edit to add...
If the freeholder doesn't know that you want to convert the loft, don't mention it during the negotiation - as that might make the freeholder think that you'll pay a higher price for the freehold.

princeofpounds

eddddy said:

You mention a loft conversion - at the moment, is the loft demised to you? i.e. is it included in the lease on your maisonette - or does it 'belong' to the freeholder?

Good point - I talked about fees for permission to extend but if the space is not demised to you it has a value too.