Freehold purchase

michymoo84

Hi,

I recently made enquiries to extend the lease on my property before we sell within the next 5 years. There are currently 89 years left and we pay £10 PA to a housing authority. They also provided the details of the freeholder, so I contacted him last night to enquire about buying the freehold. He's already got back to me with the following:

"

I have no problem selling the Freehold but there is a problem as far as I can see and I’m not trained in law. 

ForHousing have the 929 year lease and you have an 89 year lease with ForHousing. So I can only sell to the over leasee. You therefore would have to buy out your lease and then buy the freehold of myself. 

I normally sell an individual lease of 900+ years for £1000 plus legal expenses. Not sure what ForHousing would sell 89 years for. 

Please let me know if I have missed something".

As we both seem clueless, do any of you have any more definitive advice? I assumed buying the freehold would cut out ForHousing and we wouldn't need to do anything with the lease, unless we just wanted to extend it? I'd rather buy the freehold so that future buyers don't have to worry about this going forward. I'm afraid with it being leasehold, it'll put off a lot of potential buyers, even if we can secure a low or peppercorn ground rent if I extended. If I did extend the lease, I'm worried a modern ground rent clause could be applied (I'd rather not go down the statutory route due to money being quite tight).

Are any of you of the opinion that extending the lease would be the better option for me personally due to wanting to sell so soon?

Any information would be greatly appreciated.

Thanks,

Michelle

michymoo84

I'd also like to add that the property is a 3 bedroom semi detached HOUSE and the freehold is not registered with Land Registry. Not sure if this additional information affects my original question.

AdrianC

There are three things affecting your property.

There is the freehold, which may cover more properties than just yours. 

There is a headlease, 929 years, which may also cover more properties than just yours. There will be ground rent paid by the headlessee to the freeholder for this.

There is your lease, 89 years, which covers just your property. You pay £10/yr ground rent to the headlessee.

If you purchase the freehold, the headlease continues. You simply start to receive whatever payments the headlessee pays to the freeholder.

daveyjp

The original developer will probably have a 999 year lease on the land the properties were built on.  This is likely to be from the local authority so they maintain control on future development.

Houses are built, developer then sells properties with a 99 or 125 lease.

Council freeholder of land
Developer 999 year lease on the land and builds the houses.
Leaseholder then buys on a 99/125 year lease from the developer (this is you)

The freehold should be registered, but will probably be a different title number as it will cover the whole site, not just your property.

Chances are in this situation you will be unable to buy the freehold.

NameUnavailable

You could buy the ultimate freehold but the freeholder would have to offer it to the main leaseholders first I think. If you bought the freehold you would still have the HA as your leaseholder and would still need to pay them to extend your own lease.

It's probably simpler to just extend your lease.

eddddy

Just to clarify the jargon - ForHousing seem to have an 'Intermediate Lease' (sometimes called a 'Headlease')

The Leasehold Reform Act gives you the statutory right to buy the freehold and the intermediate leasehold interest (as long as you and the house meet all the criteria).


You can think of it like this - your house will be removed from the freeholder's freehold title, and it be removed from the intermediate leasehold title. And you'll end up with a freehold house.


In theory, you can negotiate a deal like this informally with the freeholder and intermediate leaseholder - but trying to negotiate a 3 way deal might be very difficult.


Unfortunately, you'll have to pay the freeholder and intermediate leaseholder's legal costs. That might end up being £2k or £3k or more. 

michymoo84

Thank you all for your advice so far, much appreciated.

I think I understand now. I naively thought that once we bought the freehold, that was that. I originally assumed FH was our freeholder until looking further into this and it didn't occur to me that we would need to purchase the freehold AND leasehold interest in order to be full freeholders.

Is purchasing the leasehold interest the same as or similar to extending the lease? When I search Google for calculators to give me a rough idea, it just brings up lease extension calculators. Sadly, our contact at FH is useless at giving us this info, only advising if we wish to buy the leasehold interest (999 years from 29.09.1928) we need to pay for the non refundable valuation fees plus their legal fees (in region of £500 + VAT).

Are the legal fees for buying the freehold in the same ballpark as extending leasehold? I'll never look at abother leasehold house again

eddddy

michymoo84 said:

Thank you all for your advice so far, much appreciated.

I think I understand now. I naively thought that once we bought the freehold, that was that. I originally assumed FH was our freeholder until looking further into this and it didn't occur to me that we would need to purchase the freehold AND leasehold interest in order to be full freeholders.

Is purchasing the leasehold interest the same as or similar to extending the lease? When I search Google for calculators to give me a rough idea, it just brings up lease extension calculators. Sadly, our contact at FH is useless at giving us this info, only advising if we wish to buy the leasehold interest (999 years from 29.09.1928) we need to pay for the non refundable valuation fees plus their legal fees (in region of £500 + VAT).

Are the legal fees for buying the freehold in the same ballpark as extending leasehold? I'll never look at abother leasehold house again

It's such a big complicated topic, maybe it's helpful to take a few steps back...

• You can go down the statutory route  - i.e. compulsorily purchase the freehold - it's called statutory enfranchisement.

• The law specifies the formula for calculating the cost - but it's more complicated than lease extensions, which is  probably why there are no online calculators.

• Here's some details on the valuation formula: https://www.lease-advice.org/advice-guide/leasehold-houses-valuation/

• The cost of the freehold to you shouldn't be any different because of the intermediate lease

• In simple terms, the cost you should pay for the freehold is calculated first. Then there's a second calculation to decide how that amount is split between the freeholder and intermediate leaseholder.

• But.. you have to pay the legal and valuation fees of both the freeholder and the intermediate leaseholder, which increases your costs.

So if you want to do this informally,

• step 1 would be to work out the cost you should pay for buying the freehold
• step 2 would be working out how that amount should be split between freeholder and intermediate leaseholder
• step 3 would be to negotiate with them, to see if they would accept roughly what you've calculated in steps 1 and 2

Then try to get them to get fixed fee quotes from their solicitors for the legal work, so you know how much that will be.

michymoo84

Thanks so much. I'm going to do some research of the sales on surrounding leasehold houses (which have sold within one month of going on the market) so I might be able to get away with just extending the lease. That would save a considerable amount of money I would imagine (if via informal route) but it's changes to the ground rent that worry me. Maybe even going down the statutory route will still work out cheaper.