Freehold to share of freehold and valuation

Hibiscouscous

Hello.

I am the freeholder of a 4 story building with 4 flats. I own 2, and the other two are owned by two leaseholders.

I think I want to change the tenure and sell share of freehold for the relevant flats to both leaseholders (they are interested).

How do I go about this and how do I get a valuation for the share of freehold?

I am totally new to this and want to get the ball rolling but want to know where to start looking!

DullGreyGuy

You are clear that you will collectively hold the freehold to the whole building and so have to act as the freeholder together when fulfilling obligations under the lease etc... you won't each just own the freehold of your particular flat. So at the moment if you own the top flat and wanted to convert the loft space you could give yourself permission to do so. In the future you'd need to come to an agreement with the other two shared freeholders. 

Have they lived there long enough to make a statutory purchase from you or is it going to be discretionary? If it's a simple ground rent and long leases there are online calculator for statutory purchases. 

You'll need to draw up an agreement on how the collective will come to decisions and deal with matters where the three of you cannot agree. 

Hibiscouscous

Oh wow this is more complicated than I thought.

So I own the basement and ground floor, the first floor is leasehold and was bought a few months ago, and the top floor is also leasehold and was bought last year.

That's frustrating, I thought by converting to share of freehold I would be able to relinquish full responsibility for the building - but seems that I wouldn't. 

At the moment I don't see the benefit of owning the freehold to the whole property - I am not making any money off it and it's not a responsibility I enjoy having (my mother died last year so I have taken over her responsibilities). 

I just figured by selling share of freehold we could share responsibility and I would be able to earn something from selling it.

eddddy

In terms of what you charge other leaseholders, it will depend on factors like the ground rent they pay, the ground rent you pay, the length of their leases, and the length of your leases.


And how you plan to deal with future lease extensions... for example, do you plan to extend their leases to 999 years and reduce their ground rent to £0 as part of the deal? (Because that's usually a good thing to do.)

eddddy

Hibiscouscous said:

I just figured by selling share of freehold we could share responsibility and I would be able to earn something from selling it.

If you don't want the responsibility, maybe look into hiring a management company to manage the building.

Trying to jointly manage a building with 2 other people might work well - or it might become a huge headache.

NameUnavailable

By selling the other leaseholders a share of the freehold you would at least be able to share the legal responsibility - if they had any issue they can't just lay it all on you as they would be party to the freehold and responsible too. You would set up a company to 'own' the freehold and each flat would own an equal share in that company - hopefully each leaseholder would also become a director.

You could (in either case) also employ a management company to take over day to day maintenance, legal compliance etc., but of course there would be costs for that, for each flat to pay.

In terms of value, how long are the other flats leases? What is the ground rent currently and does it increase and when/by how much?

Hibiscouscous

One of the flats has about 970 years and the other about 90 years left on the lease. Both pay £150 ground rent per year.

I would be happy to extend them and bring ground to 0 if that’s the right thing to do.

NameUnavailable

Hibiscouscous said:

One of the flats has about 970 years and the other about 90 years left on the lease. Both pay £150 ground rent per year.

I would be happy to extend them and bring ground to 0 if that’s the right thing to do.

The flat with 90 years left will probably want to extend their lease within the next 10 years - there are online calculators where you can get a rough idea of the going rate for that (the fee they'd need to pay you as the freeholder).

The flat with a 970 year lease also has to pay you (or the then freeholder) £145,500 in ground rent over that time (assuming is doesn't ever increase). Obviously you won't get to see that money but it is part of the value of the asset and has a bearing on the value of selling them a share of freehold and removing the ground rent.

If you were selling them a share in the freehold it would usually be the case that it would include a new 999 year lease with peppercorn ground rent (this would also apply to the leases you own). 

So it would need some working out and negotiations as to what each leaseholder should pay for the share of freehold and long lease/zero ground rent, although you could just decide a figure you're happy with on a take it or leave it basis.

If you go to a solicitor to progress this make sure you choose one that is very familiar with leasehold and shared freehold arrangements so that everything is established correctly.

eddddy

Hibiscouscous said:

One of the flats has about 970 years and the other about 90 years left on the lease. Both pay £150 ground rent per year.

That's a very strange set up - something unusual must have happened in the past to end up with leases like that.


Anyway, the person with the 970 year lease should pay less than the person with the 90 year lease.

Assuming you'll be extending the leases to 999 years and reducing the ground rent to £0...

• The person with the 970 year lease should probably pay around £3k

• For the 90 year lease, it would be more, but the exact amount depends on the market value of the flat, etc

But maybe you want to employ a freehold valuer to give more accurate figures. But you'd need to decide who pays for the valuer. For example, 1 or 2 of the leaseholders might drop out.

Plus the legal fees for transferring the freehold and doing a deed of variation for the 999 year lease and £0 ground rent will probably be a 2 or 3 thousand.

DullGreyGuy

Hibiscouscous said:

Oh wow this is more complicated than I thought.

So I own the basement and ground floor, the first floor is leasehold and was bought a few months ago, and the top floor is also leasehold and was bought last year.

That's frustrating, I thought by converting to share of freehold I would be able to relinquish full responsibility for the building - but seems that I wouldn't. 

At the moment I don't see the benefit of owning the freehold to the whole property - I am not making any money off it and it's not a responsibility I enjoy having (my mother died last year so I have taken over her responsibilities). 

I just figured by selling share of freehold we could share responsibility and I would be able to earn something from selling it.

If you were in Scotland then each person owns just their bit of the building and a share of the common areas but there is no leasehold properties in Scotland. 

You'd be changing from sole full responsibility to shared full responsibility but in exchange for the sharing it means where you lease says you need the freeholders permission for something it means the collective permission. A friend has a share of freehold in a converted house and has been locked in disputes with the other freeholder for years because they don't want to spend a penny on the property whereas he wanted to repaint the exterior, fix render, repaint the common hallway etc but the other chap keeps vetoing it all. 

If you don't enjoy managing it you could just employ a management company