Told flat being purchased would come with Share of freehold but it turns out this is not the case

Ju5t1ntime

So having had an offered accepted for a maisonette that came with share of the freehold (according to the ad and confirmed by the estate agent acting on behalf of the seller) our solicitor has informed us that this isn’t the case having heard back from the company who has the freehold. This has since been confirmed by the estate agent citing the seller innocently thinking they had SOF when in reality they did not. We are now considering our options. 

1. Is to ask for a reduction on the price based on how much it would cost to obtain SOF

2. Is to ask for a reduction based on the popular view that SOF adds 1% to the value of the property.

3. Accept that with the lease being 999 years and ground rent annually shown to have been consistently low during the sellers time in the property the situation we’ll be in is very similar as it would be if we had share of freehold.

Is this situation common? And it would be good to hear what others think is the most sensible way forward.

princeofpounds

It's not uncommon. People often have a poor understanding of freehold/leasehold definitions, and estate agents just go on what they have been told.

You cannot assume that you will be able to purchase a share of the freehold. There is a process called collective enfranchisement that allows a quorum of leaseholders to club together to force a purchase (or just right to manage) but you need that quorum, and once it's done if any flats did not participate I don't believe they have a right to join in after the fact if the others do not want them to.

Share of freehold does not add 1% to the value of the property. It can be 1%, it can be much higher. A lot depends on how long the lease is, what the ground rent terms are, what terms and conditions are in the lease etc. 

The fact that the lease is very long, and the ground rent is low (I think you partially are confusing it with service charge - ground rent is defined in the lease, it does not need to be 'shown to be low') means that in some of the most important financial respects it is a very strong leasehold tenure. You can live there practically forever, and you don't have to pay anyone to do so. So the economic value of the freehold is very low, probably just a couple of grand.

However, you will still be bound by other terms in the lease - you may have to get permission to make alterations for example - and a third party will manage the building for you. That may all be totally fine - as long as things are managed well and fairly it's a good model of living in a communal building; that's why the legal structure exists. But it's not the same thing as share of freehold (which is itself not the same thing as freehold).

AdrianC

You can ask for whatever you want.
It's up to the seller whether they agree to it or not.
If they don't, it's up to you to decide whether to walk away or not.

1% is a ridiculously trivial amount to be post-negotiating by - you don't say the purchase price, but it'd be just £2k on a £200k flat. There's certainly no accepted rule-of-thumb saying that share of freehold is worth X% on a flat with a very long lease and negligible ground rent.

How many other leaseholders are there? Just one? More? Are they involved with the freehold currently, or is the freeholder totally separate? Is there enough demand amongst other leaseholders to trigger the statutory right to buy the freehold?
The freehold would be of negligible value if all leases are as long as this one, and a proportion of negligible is negligible.

cattie

Leases of 999yrs are considered virtual freehold anyway, so can't see how the price would be affected just because leaseholder doesn't own SOF.  As somebody who has owned general leasehold with leases in region of 90yrs & currently owns a SOF with a 999yr lease, I've never come across your view that having SOF adds 1% to the value. 

To be honest I'd just continue with the purchase as is & then later, if you decide you'd like to try to acquire a share in the freehold, it's something that you can look into. Not having SOF isn't going to affect the price of your flat with the long lease it has.

eddddy

Ju5t1ntime said:

1. Is to ask for a reduction on the price based on how much it would cost to obtain SOF

There is no concept of "obtaining a share of freehold" in the way you suggest.

"Share of freehold" is a slightly misleading term used by estate agents. It means that all the leaseholders club together and buy the freehold. So all the freeholders jointly own the freehold - or perhaps the freeholders form a company which then owns the freehold, and the leaseholders own shares in that company.

In this case, it sounds like the freehold is owned by an independent company, unconnected to the leaseholders.

Ju5t1ntime said:
2. Is to ask for a reduction based on the popular view that SOF adds 1% to the value of the property.

You can certainly reduce your offer - if you want to. Whether it's by 1% or some other amount is up to you.

Ju5t1ntime said:
3. Accept that with the lease being 999 years and ground rent annually shown to have been consistently low during the sellers time in the property the situation we’ll be in is very similar as it would be if we had share of freehold.

The ground rent will be whatever it says in the lease (not necessarily what the seller paid in the past).

Or do you mean service charge? That will be your contribution to insurance, maintenance, repairs, admin costs. It's very possible that those costs might be lower with a "share of freehold" flat, compared to a flat with an independent freeholder.

But bear in mind that past low service charges doesn't necessarily mean future low service charges. For example, if the roof needs repairing in a year or two, or the outside needs repainting - it could add thousands to your service charges.

Ju5t1ntime

I really appreciate your responses and plan to go ahead with option 3.

NameUnavailable

Exactly the same happpened to me and I pulled out of the sale (wonder if it's the same place?!).

Having had an absolute nightmare with issues regarding the freeholders at my last property I'm particularly anxious about ever getting into that situation again and am therefore looking for a freehold or at lease shared freehold property.

The issue for me is having some degree of control over costs in the future. There's no limit to what a freeholder can charge for works and it's a long, costly and extremely stressful process to challenge them. At least a collection of leaseholders who collectively own the freehold aren't going to shaft themselves with high charges or uneccesary works!

princeofpounds

NameUnavailable said:

 At least a collection of leaseholders who collectively own the freehold aren't going to shaft themselves with high charges or uneccesary works!

True - but you still risk the lazy, incompetent or cranks. So it's never that risk-free.

NameUnavailable

princeofpounds said:

NameUnavailable said:

 At least a collection of leaseholders who collectively own the freehold aren't going to shaft themselves with high charges or uneccesary works!

True - but you still risk the lazy, incompetent or cranks. So it's never that risk-free.

Trust me, they are nothing compared to dealing with a vindictive money grabbing dishonest freeholder!!