Buying share of freehold, other flat has short lease

Eb39

I live in a converted flat, there are two flats, upstairs and downstairs. They are leasehold flats but I am interested in buying a share of freehold. The other flat owner is keen too, however their lease is less than 80 years. Ours is 120+ years. I wondered if anyone knew how this would effect the price of the freehold. Say would it be calculated based on the short lease of the other flat, then we have to split that cost? (which I imagine will be very high) Or would our long lease bring the cost down? 

NameUnavailable

If you buy the freehold you would still each have your current leases. 

It's 'best' to extend both to 999 years and peppercorn ground rent at the same.

There are online tools to help you get an idea of cost (search freehold valuation calculator). Lease lengths AND ground rent are factors - what is your neighbours ground rent and what's yours?

eddddy

The short answer is...

If you each want 50% share of the freehold... the other leaseholder should pay a bigger chunk of money than you. (And then you should both extend your leases to 999 years.)


To illustrate this using some made-up numbers...

• The freeholder will lose the right to get your flat back in 120 years - that's a long time away, so perhaps the "damages" due to the freeholder works out at £5k.

• The freeholder will lose the right to get the other flat back in 80 years - that's not such a long time away, so perhaps the "damages" due to the freeholder works out at £15k.

So the cost of the freehold is £5k + £15k = £20k.

But you should only contribute £5k towards it, and your neighbour should contribute £15k.



But many leaseholders will argue "Why do I have to pay more than you, if we both get 50% of the freehold?" So maybe the options open to you are:

• Instruct a professional RICS valuer to calculate the split, and hope that your neighbour accepts that a RICS valuer knows what they are talking about

• Swallow the loss, and just agree to pay £10k each (or whatever 50% is) for an easy life

• (Or you could try an approach where you each pay 50% - but don't extend the leases. So your neighbour has to pay you a chunk of money later, when they want to extend their lease. But that's more messy.)

Eb39

NameUnavailable said:

If you buy the freehold you would still each have your current leases. 

It's 'best' to extend both to 999 years and peppercorn ground rent at the same.

There are online tools to help you get an idea of cost (search freehold valuation calculator). Lease lengths AND ground rent are factors - what is your neighbours ground rent and what's yours?

Thanks for this. We pay peppercorn ground rent already. 

My motivation got getting the freehold is actually because I find the terms of the lease a bit annoying and unnecessary, for example one of the requirements is that my entire flat has to be carpeted, and also that we don't have use of our loft (that only we have access to...). I was hoping we'd be done with that if we buy the freehold but we'd need a lease anyway? Would it be easier to change the terms of the lease, and is that a complicated process? 

Eb39

eddddy said:

The short answer is...

If you each want 50% share of the freehold... the other leaseholder should pay a bigger chunk of money than you. (And then you should both extend your leases to 999 years.)


To illustrate this using some made-up numbers...

• The freeholder will lose the right to get your flat back in 120 years - that's a long time away, so perhaps the "damages" due to the freeholder works out at £5k.

• The freeholder will lose the right to get the other flat back in 80 years - that's not such a long time away, so perhaps the "damages" due to the freeholder works out at £15k.

So the cost of the freehold is £5k + £15k = £20k.

But you should only contribute £5k towards it, and your neighbour should contribute £15k.



But many leaseholders will argue "Why do I have to pay more than you, if we both get 50% of the freehold?" So maybe the options open to you are:

• Instruct a professional RICS valuer to calculate the split, and hope that your neighbour accepts that a RICS valuer knows what they are talking about

• Swallow the loss, and just agree to pay £10k each (or whatever 50% is) for an easy life

• (Or you could try an approach where you each pay 50% - but don't extend the leases. So your neighbour has to pay you a chunk of money later, when they want to extend their lease. But that's more messy.)

Thank you this is super clear. If we go down that road I can discuss with my neighbour. 

eddddy

Eb39 said:

Thanks for this. We pay peppercorn ground rent already. 

My motivation got getting the freehold is actually because I find the terms of the lease a bit annoying and unnecessary, for example one of the requirements is that my entire flat has to be carpeted, and also that we don't have use of our loft (that only we have access to...). I was hoping we'd be done with that if we buy the freehold but we'd need a lease anyway? Would it be easier to change the terms of the lease, and is that a complicated process? 

Just to clarify...

• It sounds like the freeholder owns the loft.

• So if you jointly buy the freehold, you will jointly own the loft (50% share each)

• So if you want to exclusively own the loft, you will need to buy your neighbour's 50% share

And the loft might increase the cost of the freehold - if it has development potential. i.e. The freeholder might say "the loft is worth £30k, because it could be converted to an extra bedroom for the upstairs flat.".

So using the previous numbers - the freehold might cost £20k + £30k (because of the loft) = £50k.


So one solution is if you split the  £50k like this (and you get the loft)  :

• You contribute £5k for your flat plus £30k for the loft = £35k

• Your neighbour contributes £15k for their flat

But you might be lucky, and your freeholder might not take the loft into account.



Regarding the carpets...

The rules in the lease don't disappear when you buy the freehold.

But if you and your neighbour both agree that you don't want the carpet rule any more, you can pay a solicitor to do a lease variation to remove that rule.


Or you and your neighbour could just agree that you will both ignore that rule. But then it might be a problem if your neighbour sells to somebody else, who won't ignore that rule. In theory, they could take legal action against you (but it would be expensive and difficult).

Eb39

eddddy said:

Eb39 said:

Thanks for this. We pay peppercorn ground rent already. 

My motivation got getting the freehold is actually because I find the terms of the lease a bit annoying and unnecessary, for example one of the requirements is that my entire flat has to be carpeted, and also that we don't have use of our loft (that only we have access to...). I was hoping we'd be done with that if we buy the freehold but we'd need a lease anyway? Would it be easier to change the terms of the lease, and is that a complicated process? 

Just to clarify...

• It sounds like the freeholder owns the loft.

• So if you jointly buy the freehold, you will jointly own the loft (50% share each)

• So if you want to exclusively own the loft, you will need to buy your neighbour's 50% share

And the loft might increase the cost of the freehold - if it has development potential. i.e. The freeholder might say "the loft is worth £30k, because it could be converted to an extra bedroom for the upstairs flat.".

So using the previous numbers - the freehold might cost £20k + £30k (because of the loft) = £50k.


So one solution is if you split the  £50k like this (and you get the loft)  :

• You contribute £5k for your flat plus £30k for the loft = £35k

• Your neighbour contributes £15k for their flat

But you might be lucky, and your freeholder might not take the loft into account.



Regarding the carpets...

The rules in the lease don't disappear when you buy the freehold.

But if you and your neighbour both agree that you don't want the carpet rule any more, you can pay a solicitor to do a lease variation to remove that rule.


Or you and your neighbour could just agree that you will both ignore that rule. But then it might be a problem if your neighbour sells to somebody else, who won't ignore that rule. In theory, they could take legal action against you (but it would be expensive and difficult).

Thank you, I didn't think about them charging me for the loft. It sounds like something they might do though. A change in lease may be a good idea and I just forget about the loft. Thank you for your reply it's really helpful and very easy to understand. 

NameUnavailable

Re. the carpets, especially if you're in the upstairs flat, the reason is for noise. If you fit hard flooring it's likely to cause a nuisance for the flat downstairs as they'll probably hear every footstep!

Many people ignore the rules but that just leads to neighbour disputes - I lived in a conversion flat where the person in the top flat fitted laminate flooring - fortunately not above me but the neighbour affected was reduced to tears with the stress of it all and had to resort to legal action to get the top flat to comply with the lease!

Eb39

NameUnavailable said:

Re. the carpets, especially if you're in the upstairs flat, the reason is for noise. If you fit hard flooring it's likely to cause a nuisance for the flat downstairs as they'll probably hear every footstep!

Many people ignore the rules but that just leads to neighbour disputes - I lived in a conversion flat where the person in the top flat fitted laminate flooring - fortunately not above me but the neighbour affected was reduced to tears with the stress of it all and had to resort to legal action to get the top flat to comply with the lease!

Thanks for this, yes I wouldn't want to be an inconsiderate neighbour and good to point this out. I would never ignore the rules on the lease, which is why I find it annoying as I must stick to them! I was looking into insulated laminated floors which should be quieter than carpet, but it would only ever be done with the lease change and ok from my neighbour downstairs.