What is the point of buying a freehold?

ripplyuk

My partner owns a leasehold house. About 10yrs ago, the freehold was sold but he has never had any contact with the new freeholder. The lease is 999yrs with a peppercorn rent. I don’t see how they can make any money out of it. Could anyone help me understand why someone would buy a freehold like that? Are they hoping their descendants in 1000yrs will benefit from it? 

eddddy

As you suggest, technically the freehold is worth £0. 

I suspect it was sold as part of a 'job lot' - e.g. a large freehold parcel with many leasehold houses.


Possible reasons for buying it include:

• Are there any Service charges / Estate charges? If so, somebody can buy the freehold and employ themselves as the management company - and earn a management fee.

• Is there development potential somewhere on the freehold parcel of land? e.g. The parcel of freehold land includes an 'empty space' where they can build something. They are only really interested in the 'empty space' - but they had to take your partner's house (and other houses) as part of the deal.

Or if the buyers are a little bit dodgy...

• They're hoping to sell individual freeholds to the leaseholders, at inflated rates. e.g. They bought the 'job lot' of freeholds at the equivalent of £50 per house - and they offer them to individual leaseholders at £500 per house.

Or if the buyers are very dodgy...

• The leases might say you need consent for alterations, extensions, sub-letting etc, and they want to rip-off leaseholders by charging unreasonable fees for granting those consents

Or it could have just been an administrative thing - like a company was taken over, so their properties were transferred to the new company. Or somebody wanted to close down their old company, so transferred their property to their new company.

 

Divorcing_Dad

eddddy said:

Or if the buyers are very dodgy...

• The leases might say you need consent for alterations, extensions, sub-letting etc, and they want to rip-off leaseholders by charging unreasonable fees for granting those consents

Whilst you say this is dodgy, sadly as it stands, it's perfectly legal.

Imagine if you bought a freehold for a set of 100 houses and then found they'd all dumped conservatories on and stuff.

You could quickly recoup that money charging £500 a pop.

eddddy

Divorcing_Dad said:

eddddy said:

Or if the buyers are very dodgy...

• The leases might say you need consent for alterations, extensions, sub-letting etc, and they want to rip-off leaseholders by charging unreasonable fees for granting those consents

Whilst you say this is dodgy, sadly as it stands, it's perfectly legal.

Imagine if you bought a freehold for a set of 100 houses and then found they'd all dumped conservatories on and stuff.

You could quickly recoup that money charging £500 a pop.

No - it's not legal (for leasehold properties).



According to Schedule 11 of the Commonhold and Leasehold Reform Act 2002...

• A charge made for granting consent under a lease  is an "Administration Charge"

• and Administration Charges must be "reasonable".

Last time I looked at some tribunal decisions, the tribunal seemed to agree that a "reasonable charge" for admin work could be  £50+vat per hour. (But maybe say it's £60 or £70+vat per hour now.)


So if giving consent comprises of an administrator having a quick look at the application, filing it away, and sending a standard letter of consent - that might be 30mins of 40mins of work. So maybe the correct fee should be £40 to £50+vat.

But if, for example, it's "reasonable" for the freeholder to get a surveyor or structural engineer to look at the plans - their fees can be added to the bill.

So if you can't agree a reasonable administration charge with your freeholder, you can take them to tribunal.



But some dodgy freeholders take advantage of leaseholders, as follows

• Some leaseholders don't know the law, so pay £500 without question.

• Often the issue comes up when a leasehold property is being sold. So, if the leaseholder kicks up a big fuss about the fee, it delays getting consent, which delays the sale - and/or the buyer finds out that their new freeholder overcharges leaseholders, and gets nervous. So, instead, the leaseholder quietly pays the £500 and says nothing.

NameUnavailable

eddddy said:

Divorcing_Dad said:

eddddy said:

Or if the buyers are very dodgy...

• The leases might say you need consent for alterations, extensions, sub-letting etc, and they want to rip-off leaseholders by charging unreasonable fees for granting those consents

Whilst you say this is dodgy, sadly as it stands, it's perfectly legal.

Imagine if you bought a freehold for a set of 100 houses and then found they'd all dumped conservatories on and stuff.

You could quickly recoup that money charging £500 a pop.

No - it's not legal (for leasehold properties).



According to Schedule 11 of the Commonhold and Leasehold Reform Act 2002...

• A charge made for granting consent under a lease  is an "Administration Charge"

• and Administration Charges must be "reasonable".

Last time I looked at some tribunal decisions, the tribunal seemed to agree that a "reasonable charge" for admin work could be  £50+vat per hour. (But maybe say it's £60 or £70+vat per hour now.)

The trouble is that if the freeholder charged £500 and the leaseholder (correctly) thought that to be unreasonable, they would still need to pay to take the case to tribunal to challenge the costs.

The law needs changing and there should be rulings on what a freeholder can charge for things like granting permissons and completing forms etc.

eddddy

NameUnavailable said:

eddddy said:

Divorcing_Dad said:

eddddy said:

Or if the buyers are very dodgy...

• The leases might say you need consent for alterations, extensions, sub-letting etc, and they want to rip-off leaseholders by charging unreasonable fees for granting those consents

Whilst you say this is dodgy, sadly as it stands, it's perfectly legal.

Imagine if you bought a freehold for a set of 100 houses and then found they'd all dumped conservatories on and stuff.

You could quickly recoup that money charging £500 a pop.

No - it's not legal (for leasehold properties).



According to Schedule 11 of the Commonhold and Leasehold Reform Act 2002...

• A charge made for granting consent under a lease  is an "Administration Charge"

• and Administration Charges must be "reasonable".

Last time I looked at some tribunal decisions, the tribunal seemed to agree that a "reasonable charge" for admin work could be  £50+vat per hour. (But maybe say it's £60 or £70+vat per hour now.)

The trouble is that if the freeholder charged £500 and the leaseholder (correctly) thought that to be unreasonable, they would still need to pay to take the case to tribunal to challenge the costs.

The law needs changing and there should be rulings on what a freeholder can charge for things like granting permissons and completing forms etc.

The fee to go to tribunal is £100. And the freeholder usually has to pay you back if you win.

And you won't need any legal advice or representation for a case as simple as this. 


Here are 3 random examples of where leaseholders challenged Administration Charges at a tribunal - by themselves, with no representation - and won a reduction in charges:

• Refund of £300 in Administration charges:  https://assets.publishing.service.gov.uk/media/642592ff2fa848000cec1037/Flat_36_Matilda_Apartments.pdf

• Refund of £2250 in Administration Charges  : https://assets.publishing.service.gov.uk/media/643d58d08b86bb0013f1b3a5/20230413_Amended_Decision_LGF_11_Belgrave_Gardens_I_Mohabir.pdf

• Refund of £320 in Administration Charges: https://assets.publishing.service.gov.uk/media/62e3becfd3bf7f75b10cf8cb/2022_July_14_4_Shepherd_Mews_Church_Lane_Ryde_Admin_Decn.pdf

PLUS... based on discussions with others, quite a few dodgy freeholders will back down, if you threaten them with tribunal. Because they don't want a tribunal ruling against them saying that their £500 consent charge is unreasonable. 

Instead, they'd rather agree to accept £100 from that one leaseholder, and hope that the leaseholder will "shut up and go away", so that they can continue charging other leaseholders £500.

user1977

ripplyuk said:

My partner owns a leasehold house. About 10yrs ago, the freehold was sold but he has never had any contact with the new freeholder. The lease is 999yrs with a peppercorn rent. I don’t see how they can make any money out of it. Could anyone help me understand why someone would buy a freehold like that? Are they hoping their descendants in 1000yrs will benefit from it? 

• leasehold generally adds to legal costs - so the owners would save on the extra costs whenever they remortgage or sell
• leasehold makes some buyers twitchy (even where it's a pretty benign quasi-freehold title) - so you stop deterring them when you sell
• although ultra-long leases usually have minimal covenants, and probably don't require freeholders consent every time you do something minor, they might at least require freeholder involvement for more significant things (e.g. changing the use from residential to something else) - so there's some low-but-not-zero chance of getting some money whenever that happens
• if any government gets around to properly abolishing leasehold, no doubt there'll be some compensation available to freeholders for having their interest compulsorily purchased or however it's done