Leasehold Purchase Rights.

Mercuryrev

We are currently considering the purchase of a detached coach house that has been on the market for the past three months. When we questioned why it hadn't sold, we were told that as it was leasehold and over £300k, anyone seeking a first mortgage would likely to be refused.

The property suits our needs and so we asked about the possibility of buying the freehold. The building company are listed as being the freeholders, however the vendor approached the, separate, management company who told him that "the landlord is not able to offer the freehold to individual leasehold flat owners on an individual basis" also that "this  does not affect your statutory right under the act to seek the purchase of freehold"

Is it normal for a management company to deal with an approach to buy, or would the freeholders themselves deal with this?

As I understand it, there is a legal right to buy a freehold after two years. Does this apply only to the first purchaser, or are subsequent owners allowed the same right?

Whilst we are very keen on the property, we don't want to be in the same situation, should we decide to sell in years to come.

Thanks in advance.

eddddy

Mercuryrev said:

When we questioned why it hadn't sold, we were told that as it was leasehold and over £300k, anyone seeking a first mortgage would likely to be refused.

Really? Who told you that?

FTBs in many areas of London would find it very difficult to find a leasehold flat for under £300k.


But more importantly.... are you calling it a coach house because there are garages underneath it?

According to the legislation, it sounds like your property would be classed as a 'flat' and not a 'house'.  (In your post, you say that the management company called it a 'flat' as well.)

The garages under your property aren't included in your lease (presumably) - so the building is divided horizontally. If a building is divided horizontally it can't be a house. To be a house, the building can only be divided vertically.

So you won't have the statutory right to buy the freehold at any time, even after 2 years.

Mercuryrev

eddddy said:

Mercuryrev said:

When we questioned why it hadn't sold, we were told that as it was leasehold and over £300k, anyone seeking a first mortgage would likely to be refused.

Really? Who told you that?

FTBs in many areas of London would find it very difficult to find a leasehold flat for under £300k.


But more importantly.... are you calling it a coach house because there are garages underneath it?

According to the legislation, it sounds like your property would be classed as a 'flat' and not a 'house'.  (In your post, you say that the management company called it a 'flat' as well.)

The garages under your property aren't included in your lease (presumably) - so the building is divided horizontally. A house can't be divided horizontally, it can only be divided vertically.

So you won't have the statutory right to buy the freehold at any time, even after 2 years.

Thanks for the reply.

Several agents and a friend who is an amateur property buyer/improver/bored have told us that. The property is about 30/45 minutes by train outside London. The local market has been flooded with buyers moving out from London.

Yes, I am calling it that, as there's 4 car ports underneath, two of which belong to the property and the other two to a neighbour. We have spoken to him and as far as he is aware(!), he pays nothing for those spaces. His property is a freehold house. We haven't seen the lease, so we don't know what is included.

Why would we not have the right to buy? If the 'flat' is on it's own and we would be the tenants, why are the agents mentioning statutory rights?

Surely someone (the builders I assume) owns the freehold to the parking spaces, therefore could they not be bought?

Apologies for my ignorance, I'm trying to cram....

eddddy

Mercuryrev said:

Why would we not have the right to buy? If the 'flat' is on it's own and we would be the tenants, why are the agents mentioning statutory rights?

I think the agents are just adding a standard disclaimer. It's like when shops put on the bottom of a sign "This does not affect your statutory rights".

It's very unlikely that your lease will include all 4 parking spaces.

The law specifies the conditions required to buy the freehold. Your property doesn't seem to meet those conditions. So you don't have the right to buy the freehold.

As I say, according to the law - your property is probably a flat, and not a house.


The owner of the building can voluntarily choose to sell you the freehold of the building. But you can't force them to. And the reply from the agent makes it sound like they don't want to sell the freehold to you.



(The government is discussing changes to the law which might give you the statutory right to buy the freehold at some point in the future. But it's definitely not guaranteed.)

Mercuryrev

eddddy said:

Mercuryrev said:

Why would we not have the right to buy? If the 'flat' is on it's own and we would be the tenants, why are the agents mentioning statutory rights?

I think the agents are just adding a standard disclaimer. It's like when shops put on the bottom of a sign "This does not affect your statutory rights".

It's very unlikely that your lease will include all 4 parking spaces.

The law specifies the conditions required to buy the freehold. Your property doesn't seem to meet those conditions. So you don't have the right to buy the freehold.

As I say, according to the law - your property is probably a flat, and not a house.


The owner of the building can voluntarily choose to sell you the freehold of the building. But you can't force them to. And the reply from the agent makes it sound like they don't want to sell the freehold to you.



(The government is discussing changes to the law which might give you the statutory right to buy the freehold at some point in the future. But it's definitely not guaranteed.)

Thanks again for your reply.

Apologies again for my ignorance, why would the freeholders not want to sell? They are currently building coach houses on the same development and selling them freehold, complete with car ports that will be for other house owners. A ground rent of £250 pa isn't exactly a good return, is it? As they are responsible for repairs to the property (albeit unlikely in a 6 year old property) is the hassle worth it?

Also the agents mention "not able to offer the freehold to individual leasehold flat owners on an individual basis" As there is only one 'flat' how can it be anything other than an 'individual owner', we can't exactly enlist the support of other flat owners?

Slithery

Mercuryrev said:

Apologies again for my ignorance, why would the freeholders not want to sell?

Who knows? But as you don't have the legal right to purchase it it's completely their decision.

Mercuryrev said:

They are currently building coach houses on the same development and selling them freehold, complete with car ports that will be for other house owners.

If the other coach-houses have garages underneath that are demised to other properties then they won't be freehold.

Mercuryrev said:

Also the agents mention "not able to offer the freehold to individual leasehold flat owners on an individual basis" As there is only one 'flat' how can it be anything other than an 'individual owner', we can't exactly enlist the support of other flat owners?

It can't. That's why they're not going to sell you the freehold. The term 'couch-house' is a misnomer. They are all 'coach-flats'.

eddddy

Mercuryrev said:

Apologies again for my ignorance, why would the freeholders not want to sell? 

I don't know. You'd have to ask them.

Maybe they didn't understand your question. Maybe it's just their policy. Maybe they'll change their minds if you hassle them. Who knows?

But there might also be a lot of legal 'untangling' to do - with giving that other person the right to park under your building and/or becoming the landlord of the other person's parking spaces.

Mercuryrev said:

Also the agents mention "not able to offer the freehold to individual leasehold flat owners on an individual basis" As there is only one 'flat' how can it be anything other than an 'individual owner', we can't exactly enlist the support of other flat owners?

I didn't make the law - so I don't know what was behind the government's thinking.

But I know that some developers have purposely exploited this 'loophole' to stop leaseholders buying the freehold of their properties.

Mercuryrev

Slithery said:

Mercuryrev said:

Apologies again for my ignorance, why would the freeholders not want to sell?

Who knows? But as you don't have the legal right to purchase it it's completely their decision.

Mercuryrev said:

They are currently building coach houses on the same development and selling them freehold, complete with car ports that will be for other house owners.

If the other coach-houses have garages underneath that are demised to other properties then they won't be freehold.

Mercuryrev said:

Also the agents mention "not able to offer the freehold to individual leasehold flat owners on an individual basis" As there is only one 'flat' how can it be anything other than an 'individual owner', we can't exactly enlist the support of other flat owners?

It can't. That's why they're not going to sell you the freehold. The term 'couch-house' is a misnomer. They are all 'coach-flats'.

Thanks for your reply.

My question was a general one, where is the attraction to an investor in owning the freehold when the return is £250pa? I must be missing something....

I can only quote what I've been told and read, several coach houses/flats we have looked at are being offered as freehold. Or are you saying that the garages/ports will not be part of the freehold?

Thanks again

eddddy

Mercuryrev said:

My question was a general one, where is the attraction to an investor in owning the freehold when the return is £250pa? I must be missing something....

Is the coach house part of a larger development?  If so, they'll be a whole bunch of ground rents.

Alternatively, many investors will use their money to buy loads of ground rents - so when you add them all together, they're getting an income of many thousands per year.  It's a kind of business for them.

(Apparently, Ground Rent investors in small developments look for a return of about 6% to 7% on their investment.)

Mercuryrev said:

I can only quote what I've been told and read, several coach houses/flats we have looked at are being offered as freehold. Or are you saying that the garages/ports will not be part of the freehold?

Yep - you can have freehold coach houses.

Generally, the garages underneath are leased to the owners of other properties.

So the owner of the coach house is a landlord, and they have tenants using the garages.

Mercuryrev

eddddy said:

Mercuryrev said:

My question was a general one, where is the attraction to an investor in owning the freehold when the return is £250pa? I must be missing something....

Is the coach house part of a larger development?  If so, they'll be a whole bunch of ground rents.

Alternatively, many investors will use their money to buy loads of ground rents - so when you add them all together, they're getting an income of many thousands per year.  It's a kind of business for them.

(Apparently, Ground Rent investors in small developments look for a return of about 6% to 7% on their investment.)

Mercuryrev said:

I can only quote what I've been told and read, several coach houses/flats we have looked at are being offered as freehold. Or are you saying that the garages/ports will not be part of the freehold?

Yep - you can have freehold coach houses.

Generally, the garages underneath are leased to the owners of other properties.

So the owner of the coach house is a landlord, and they have tenants using the garages.

Yes it is part of a much larger development although I wouldn't imagine there are many leasehold properties. The vast majority of the properties will be freehold houses.

At 6/7%, £250pa would mean the initial purchase price would need to be around £5k. Based on that, if I was the freeholder and someone offered to buy for £7500 (my uneducated figure), I'd be happy with a 50% profit in 5/6 years.

I can't force them to sell, of course, it is more a frustration that such a small sum makes a nice property unattractive to us.

eddddy

So why don't you buy it leasehold?

The stuff about not being able to get a mortgage on a leasehold property over £300k sounds like it might be a misunderstanding.