Freehold Purchase of Leasehold Apartment (Ground Rent £350 pa 10year review 2024 RPI)

djh

The Leaseholders of our seven apartment purpose built apartments have been  served a notice from the developers solicitors offering the Freehold to the building. The Apartments were purpose built in 2015 to a high standard are 3 storey with Brick external Facia and pitched tiled roof in a parkland setting. The value of the individual apartment's are £380,000 - £400,000 .I believe insurance valuation Buildings Cost to be between £ 2 -2.5 Million. The offer cost is £40,000 which I believe is for the whole building. There are two different blocks involved on the same development. I would appreciate any advice recommendations from forum members who have gone through this process.EG  Will a specialist solicitor or company offering a full Surveying-Legal package be a more suitable option. I believe we have four definite Leaseholders who would take the offer. Is it possible for other Leaseholders to purchase other Leaseholders options. My apologies for lengthy post I did want to provide as much information as possible. 

eddddy

djh said:

Is it possible for other Leaseholders to purchase other Leaseholders options. 

That's not really how it works.

In simple terms, it's like this:

• A freehold building is for sale for £40k.

• In order to buy it, 4 (or 5 or 6 or 7) leaseholders must sign some documents (i.e. over 50% of the leaseholders)

• You can raise the £40k in any way you like. For example:

• • 4 leaseholders could put £10k each in the pot
• • 1 leaseholder could put £40k in the pot
• • 5 leaseholders could put £8k each in the pot
• • 1 leaseholder could put £35k in the pot and 5 other leaseholders put £1k each in the pot
• Arthur from the pub could put £30k in the pot and Jenny from the betting shop could put £10k in the pot

• After the purchase, you can agree to split-up ownership of the freehold building anyway way you like :

• • Shares don't have to go to all the people who signed the documents (they could go to others as well, if you want)
• Shares don't have to reflect the money each person put in (but they usually do)

But in reality, people almost always go for equal payments and equal splits, for example:

• 4 leaseholders sign the docs, put £10k each in the pot and get a 25% share each
• 5 leaseholders sign the docs, put £8k each in the pot and get a 20% share each
• 6 leaseholders sign the docs, put £6.67k each in the pot and get a 16.67% share each

But if only 3 leaseholders are interested, you can still buy the freehold - but with the help of a 4th leaseholder to sign the docs

• 4 leaseholders sign the docs, but only 3 of them put  £13.3k each in the pot and get a 33% share each
  

djh

Many thanks for your prompt reply. The cost of the Freehold does not sound too extortionate. We as a group will need to get legal representation. The question is do we need to go down the valuation route which may raise costs or try and keep the legal part as non confrontational as possible.

eddddy

So has the freeholder served you a Section 5 notice - i.e. Right of First Refusal?


If so, the freeholder is telling you that they intend to offer the freehold on the open market for £40k (or they might have already found a buyer willing to pay £40k).

If it's an informal offer (i.e. no section 5 notice), it's more likely to be an 'opening punt' - which you can negotiate down.


The most important factors in determining whether £40k is a fair price are Ground Rents and Length of Leases.


Another route to buying the freehold is called "Collective Enfranchisement". It might be worth clubbing together to pay for a valuation for "Collective Enfranchisement". 

If the valuer says buying the freehold that way might cost, say, £50k - you'll know you're being offered a bargain.

But if the valuer says buying the freehold that way might cost, say, £25k - maybe you want to negotiate the price down, or walk away and maybe start the "Collective Enfranchisement" process instead.

See: https://www.lease-advice.org/advice-guide/ce-getting-started/

eddddy

I just noticed that your ground rent is £350 and increases with RPI.

If all 7 flats have the same ground rent terms, £40k for the whole freehold building sounds very cheap to me. But check with a valuer.

After the purchase, the joint freehold owners should reduce their ground rents to zero and extend their leases to 999 years.

djh

Great advice. We have long leases 999 from Jan2014 (Transfer of land to developer /freeholder) Also the original & current leaseholders have yet to pay a service charge (likely to be 2K) so are already at least 12K in front. It is a Tri-partite lease but the management company on the Lease consists of Resident Directors on the development as a whole which I am one of.

djh

So has the freeholder served you a Section 5 notice - i.e. Right of First Refusal?


If so, the freeholder is telling you that they intend to offer the freehold on the open market for £40k (or they might have already found a buyer willing to pay £40k).

Yes it is a Section 5 and 5a offer notice.

eddddy

djh said:

It is a Tri-partite lease but the management company on the Lease consists of Resident Directors on the development as a whole which I am one of.

OK - so as you probably realise, buying the freehold will have no impact on the management of the building. It will continue as it is.

And there is no requirement for the company owning the freehold to be aligned with the management company. e.g. they can have the same directors and shareholders or completely different ones.


And it also means that if you decide not to buy the freehold, and it gets sold to somebody else - the management of the building will continue as it is. (But you'll have to continue paying ground rent to the new freeholder.)

NameUnavailable

To clarify one point, if there are 7 flats/leaseholders and only 4 are prepared to buy the freehold, you can proceed and will become the freeholder to the other 3 leaseholders.

You would not alter their leases and they would continue to pay ground rent to the freeholder (which would be shared between the 4 parties to the freehold). Likewise any income from lease extensions etc.

This is separate to any maintenance charges which go into paying for the upkeep of the building and insurance etc.