Buying the Freehold of our Leasehold house - rip off?

Slithery

eddddy said:

amylloyd98 said:

would this price be negotiable at all?

Everything is negotiable.  You say the freeholder sold a similar freehold for £36k last year, so maybe it's worth making an offer.

The freeholder has made an offer of £58k, you can make a counter offer of £36k (or any other amount) if you like.


Your freeholder has had a valuation done - which you paid for. Normally a valuation report says something like this (I've guessed the numbers) ...

If the freehold valuation goes to a tribunal, we believe that:

• The best case outcome would be a £55k valuation
• The worst case outcome would be a £28k valuation
• The most likely outcome would be a £38k valuation

Therefore, we recommend that you make an initial offer of £58k


So it might be sensible for you to get your own valuation done, so you have the same type of information that your freeholder has. (You'd have to use a different valuer from your freeholder, to avoid a conflict of interest.)

I didn't think that owners of a leasehold house had the legal right to purchase the freehold or use a tribunal?

eddddy

Slithery said:

I didn't think that owners of a leasehold house had the legal right to purchase the freehold or use a tribunal?

Take a look here: https://www.lease-advice.org/advice-guide/houses-qualification-valuation/

Here's an extract...

2. THE LAW

The Leasehold Reform Act 1967 (the 1967 act) gives leasehold tenants of houses the right to buy  the freehold.
....
...
...
5.3

If you and the landlord cannot agree a price, you should apply to the First-tier Tribunal (Property Chamber)

Slithery

eddddy said:

Slithery said:

I didn't think that owners of a leasehold house had the legal right to purchase the freehold or use a tribunal?

Take a look here: https://www.lease-advice.org/advice-guide/houses-qualification-valuation/

Here's an extract...

2. THE LAW

The Leasehold Reform Act 1967 (the 1967 act) gives leasehold tenants of houses the right to buy  the freehold.
....
...
...
5.3

If you and the landlord cannot agree a price, you should apply to the First-tier Tribunal (Property Chamber)

Thanks for that, I think I was getting confused with the right to get a statutory lease extension.

eddddy

amylloyd98 said:

The lease has around 15 years left. 
...
we did get a letter this morning saying the freehold will cost £58,000!!!! 
...
i believe our house would be valued at no more than £280,000 
..
We really do not have this kind of money

So in 15 years time the house will be worth £0.

The freeholder might then what to start charging you full rent, or might even want to start the process for evicting you. 


One option you could consider is selling now, and 'downsizing'. It could work like this:

• You offer the house for sale for £280k freehold (or more accurately, 'freehold on completion'.)

• Assuming you get an offer and sell for £280k...
• • £58k would go to the freeholder for the freehold
• • £222k would go to you for the leasehold

So you have £222k (less costs) to buy another home - without a short lease.

Hopefully the new home's value will increase over time. (Unlike your current house, which will probably be decreasing in value at the moment, because of the short lease.)


But you will need the cooperation of your freeholder to do this.

newsgroupmonkey_

amylloyd98 said:

Thanks all for all of your help - it has been a real eye opener for me (and my parents) and also a (very expensive) lesson learned. I think we will have to raise the funds from somewhere, and treat it as an investment for the long term. 

Really appreciate all of the advice!

Another heads up. The house is currently unsellable in its present condition. No-one would buy it unless it was heavily discounted.

£58k actually sounds very reasonable to me. I looked at 30+ year leases to extend on flats that are selling for very little and they were much more expensive.

Raerea

Seems like you have some solid advice above. I wanted to add that if your parents are the original owners of the property it may be worth checking the lease paperwork. I say this as my mother received a £9,000 offer to buy the freehold of her property from the freeholder (if she purchased before the end of that particular years tax year which was less than a month timescale) however as the original/first purchaser of the property it states on the paperwork that she may buy it at £750. This does exclude legal fees for solicitors etc but still a big saving and worth knowing.

Good luck!

newsgroupmonkey_

I'll add some more here

If you use this particular calculator......

http://lease-extensions.org.uk/calculator.html

It says that to extend is £167k.

I've just spoken to someone in the trade. They said as it stands currently, the house is worth around 30% of its true market value - so around £80k - if you wanted to sell it.

Quite honestly, for £58k, bite their arm off.

eddddy

newsgroupmonkey_ said:

I'll add some more here

If you use this particular calculator......

http://lease-extensions.org.uk/calculator.html

It says that to extend is £167k.

Your link is to a lease extension calculator for flats. The OP has a house.

• Lease extensions for houses have completely different terms - so the calculator isn't relevant
• The OP is talking about buying the freehold, not extending thee lease

newsgroupmonkey_ said:

I've just spoken to someone in the trade. They said as it stands currently, the house is worth around 30% of its true market value - so around £80k - if you wanted to sell it.

That sounds very unlikely. The OP says:

• The house would be worth £280k with the freehold
• The freehold would cost £58k

So I suspect an investor with cash would pay somewhere between £150k and £200k - as that would give them an almost instant profit of tens of thousands.

(Assuming the OP makes a notice of claim for the freehold, and assigned the benefit to the buyer.)

eddddy

Actually, it's worth mentioning that - instead of buying the freehold - you can extend the lease by 50 years for free.

But the ground rent would increase to a 'modern ground rent'.  

See: https://www.lease-advice.org/faq/i-cant-afford-to-buy-the-freehold-of-my-house-can-i-extend-my-lease-instead/

The article below suggests that a house worth £300k might have a 'modern ground rent' of £5,250 per year.

Therefore a property that’s worth £300,000 could have a site value of £105,000, based on 35% of its total value. The modern ground rent is calculated on a de-capitalised basis, so in this example it would be £5,250 per annum.

Link: https://www.sleeblackwell.co.uk/legal-articles/modern-ground-rent-time-bomb

newsgroupmonkey_

eddddy said:

That sounds very unlikely. The OP says:

• The house would be worth £280k with the freehold
• The freehold would cost £58k

So I suspect an investor with cash would pay somewhere between £150k and £200k - as that would give them an almost instant profit of tens of thousands.

(Assuming the OP makes a notice of claim for the freehold, and assigned the benefit to the buyer.)

Nice to see experts in here.