Landlord selling freehold

deejaybee

Hi all,

We own a Leasehold flat in a purpose-built block of 9 flats.

Just received a solicitors letter out of the blue stating that the Landlord ( A Ltd Company ) intends to transfer its interest in the property consisting of the block that your flat forms a part of. Before doing so, it is required under the Landlord and Tenant Act 1987 to first offer to sell its interest in the Property to the qualifying tenants of the property.

I am reading it as just a standard letter they are legally required to send out... Is there anything for us to worry about ?

There is a figure mentioned on the back of letter - nearly £55K - it dosnt make clear if that figure is per flat, or the whole Property, but i am assuming it is the former.

Also states - THIS NOTICE CONSTITUTES AN OFFER by the Landlord to enter into a contract on the principle terms mentioned in paragraphs 3 to 5 of this notice. This offer may be accepted by the requisite majority of qualifying tenants of the constituent flats.

Does that last statement mean that if the majority of tenants wanted to take up the offer, then the rest would also have to join in, or would the majority simply become the new freeholders over the rest ?

Ta

eddddy

deejaybee said:

Does that last statement mean that if the majority of tenants wanted to take up the offer, then the rest would also have to join in, or would the majority simply become the new freeholders over the rest ?

£55k is probably the price of the freehold for the whole block. Assuming all the flats have long leases, and the ground rents are low - that's quite possible.

In simple terms,

• more than 50% of the (qualifying) leaseholders have to sign the paperwork.
• Probably a company will be created to own the freehold
• The company needs to find £55k to pay for the freehold
• Shares in the company can be allocated in whatever way you like
• The company will manage the building
• The company rules for managing the freehold will have to be agreed

 
Examples of how this works includes:

Example 1

• 9 leaseholders sign the paperwork
• A company is formed
• Each leaseholder gives (or lends) the company £6,111
• Each leaseholder gets 1/9th of the shares

Example 2

• 5 leaseholders sign the paperwork
• A company is formed
• Each of the 5 leaseholders gives (or lends) the company £11k
• Each of the 5 leaseholders gets 20% of the shares

Example 3

• 5 leaseholders sign the paperwork
• A company is formed
• Leaseholder 1 gives the gives (or lends) the company £51k
• Leaseholders 2,3,4 & 5 each gives (or lends) the company £1k
• Leaseholder 1 gets 92% of the shares and Leaseholders 2,3,4 & 5 each get 2% of the shares

Example 4

• 5 leaseholders sign the paperwork
• A company is formed
• Leaseholder 1 gives the gives (or lends) the company £55k
• Leaseholders 2,3,4 & 5 give nothing to the company
• Leaseholder 1 gets 100% of the shares and Leaseholders 2,3,4 & 5 get no shares
  

Example 5

• 5 leaseholders sign the paperwork
• A company is formed
• A 3rd party investor called George gives the gives the company £71k
• George gets 100% of the shares
• The 5 leaseholders share the £20k profit between them

deejaybee

Thanks Eddddy for your detailed reply - appreciated.

Yes the flats all have long leases, originally 130 years starting in 2003.

Regarding the ground rents i wouldnt exactly call them low... when we first moved in they were £80 ish every 6 months ( havnt got paperwork to hand ) then at the 10 year review point in 2013 went up to the current figure of £117 every 6 months. Next review is 2023 ( go up by cost of living ) so i expect they will then exceed the important figure of £250 per year......we are not in London.

I have meaning to speak to CMA as apparently they are investigating "unfair" ground rent clauses but not got round to it yet, but that is going off on a tangent from my OP.

eddddy

deejaybee said:

Regarding the ground rents i wouldnt exactly call them low... when we first moved in they were £80 ish every 6 months ( havnt got paperwork to hand ) then at the 10 year review point in 2013 went up to the current figure of £117 every 6 months. Next review is 2023 ( go up by cost of living ) so i expect they will then exceed the important figure of £250 per year......we are not in London.

That introduces a new aspect.

Unless the law changes before 2023 (regarding the £250 AST limit), even if you buy the freehold, you'll still have a bit of complexity with selling.

So to avoid the complexity with selling...

• If 9 of you club together to buy the freehold, you probably want to vary the 9 leases at the same time - reducing the ground rent to zero and extending the leases to 999 years at the same time.

• Or if 5 of you club together to buy the freehold, you probably want to vary your 5 leases at the same time - reducing the ground rent to zero and extending the lease to 999 years at the same time.  And then if the other 4 leaseholders want to reduce their ground rents and/or extend their leases, they'd have to pay the 'club of 5 people' a chunk of money.

deejaybee

Interesting stuff thank you.

Regarding the owners - out of 9 flats, there are ( i think ) only 3 including us where the owners are there all the time, possibly another 2 where folks have bought them and their son/daughter lives there.

I had been considering getting quotes for statutory lease extension as that would solve the £250 AST issue, without the complication of becoming a freeholder ( which wasnt on my radar until the letter arrived )

Although i was also thinking "what if the law changed in the near ish future " and i had shelled out for lease extension already !

Tranboy

What if only 5 people buy the leasehold and building works are required, how would thd other 4 be made to pay? Collective Enfranchisement is the term you need to google. We in this house split into three flats have a limited company formed and between us we take care of insurance, maintenance etc. Assuming all 9 of you do this it makes your flats more saleable but you need to have set up a firm set of rules and have a sinking fund set up, it is a regular payment to cover the cost of insurance, accountancy for the company accounts and a sum to cover all regular maintenance such as hall painting, gardening etc, would all of you commit to a monthly payment of £100 for example and much more for serious building work as many were in the cladding crisis. Lease-advice.org explain it well.

Slithery

The same way that it already happens. The freeholder would take them to court and if they still failed to pay a charge would be put on their leasehold.
Nothing changes at all except the freehold is now owned by a different company.

Tranboy

I'm just saying that wheras now they are answerable to one person ,attaining collective enfranchisement they would be answerable to each other, rather like splitting up a restaurant bill at the end of the night not everyone wants to pay their fair share...

..I never had any poppadoms...

eddddy

Tranboy said:

I'm just saying that wheras now they are answerable to one person ,attaining collective enfranchisement they would be answerable to each other, rather like splitting up a restaurant bill at the end of the night not everyone wants to pay their fair share...

..I never had any poppadoms...

To use your analogy - the lease says what you have to pay for - so if the lease says you have to pay for the poppadums, you have to pay for them - whether you eat them or not.

It's not really accurate to say you're responsible to each other. The leases remain in place, and the landlord/tenant relationship remains in place.



More generally, owning a freehold is a bit like owning a (potentially complex) business.

• If people don't pay the money they owe you, you have to be prepared to take legal action against them.
• You should understand leases (e.g. if/when you're allowed to order 'poppadums', and who has to pay for them)
• You should understand a huge pile of legislation regarding leaseholds

A freeholder is a landlord - and they have tenants. As a landlord you have lots of rights and responsibilities.

Many freeholders chose to employ a management company to deal with all that stuff, because it's complex.

NameUnavailable

If you don't buy the freehold what you do know is that someone else is going to buy it and become your new freeholder. They can't change the lease but they can employ different management co's or put in place different service charges/schedules or works etc.

You will all still need to pay to extend your leases and remove the ground rent, which might cost as much as buying the freehold and just granting yourselves new 999 year leases/peppercorn rents. You can then decide who manages the building etc. A much better option and should add value when/if anyone wants to sell.

deejaybee

Hi all - thanks for all the comments.

I should have made clear that there is already a Management Company.

It is an estate where there are freehold houses and leasehold flats.

Every 6 months we ( in flats ) pay Ground Rent to the Freeholder ( Ltd Company based in London )

and Management bill ( for our block ) - there are other blocks -  to Management Company based locally in same town in Devon.

and Management bill ( for Estate upkeep ) to same Management Company.

The owners of the houses just pay the Management bill for the Estate.