Process for Selling Freehold

ZedDown

Hi,

I'm planning to sell a freehold I own of a 2-flat converted house, and will obviously be giving the leaseholders (flat owners) the right of first refusal.

I want to make sure I stick to the required process. So I have a few questions which I hope people here can answer.

My understanding is that I will be serving a Section 5A notice, clarifying that the offer is for a private sale (as opposed to auction), and that they are being given right of first refusal (with the notice including all relevant info like details of the property, my contact info, and the price being offered, including the required deposit.)

First question - Does it take the form of a letter containing the required information, or is there a format or template that has to be strictly adhered to? I've seen links to online templates so could go ahead with one of those if that's the recommended way.

I then give them two months (or more if I like?) to respond (with the deadline specified in the notice).

I understand it has to be a take it or leave it offer - i.e. no negotiation, and (if they say no) no lower offer to another party in the next 12 months. The prohibition on selling it lower to someone else seems to be the key point here - if the leaseholders don't go for it, can I still go back to them with a lower (but still reasonable) value within that period? Or am I waiting another year to have another go at selling it to them?

Next question - if one leaseholder is interested but the other one isn't, does it simply go ahead as a sale to the one who is interested in buying? I read somewhere there needs to be a majority acceptance - how does that work for one yes and one no?

And is the sale itself similar to a property sale, with conveyancers or solicitors on each side handling their side of things, such as drawing up contracts? (If so, should I get one nominated on my side sooner rather than later? In fact would they be able to handle the whole thing including the initial offer, or is it more usual for the freeholder to make the first moves themselves?)

(I'm aware that specialist freehold sales companies exist, who can do the whole thing on my behalf - do they tend to be a reputable (and cost-effective) way of handling freehold sale to leaseholders?)

I also understand that multiple leaseholders clubbing together would have to form a company to be the entity which buys the freehold and then manages the building. Does this information need to be in their response to the Section 5A, with a company or individual being nominated? Or is there a further notice period / deadline for that information after they've given an initial response to the offer?

Let me know if I've missed or misinterpreted anything, or if there are any pitfalls I need to look out for.

Thanks in advance,

Z.

eddddy

How are you planning to market/advertise the freehold? As you probably realise, freeholds are a very niche market.



In your position, I might do something like this:

Step 1
Informally ask the leaseholders if they want to buy the freehold. Maybe something like this:

"I'm planning to sell the freehold for £20k (or whatever). If one or both of you are interested in buying it, please let me know."

If either or both leaseholders say "yes", instruct a solicitor who specialises in freehold sales - and ask them if you need to go through the motions of Serving a Section 5a notice (which everybody should ignore), to meet the legal obligations.


Step 2
If both leaseholders say "no" start looking for a 3rd party buyer for £20k (without serving a Section 5a notice).

• Let's say you find a buyer who negotiates you down to £17k.
• You tell the buyer that they must wait 2 months, and the deal is conditional on the leaseholders turning down their right of first refusal
• You serve a Section 5a notice on the leaseholders, stating a price of £17k

So you either have...

• A gentleman's agreement with the buyer that the sale will take place in 2 months, if the leaseholders reject the RFR (meaning either party can back out during those 2 months)

• Or you and the buyer both sign a conditional contract saying that the sale must happen after 2 months, if the leaseholders reject the RFR (meaning that neither party can back out during those 2 months)

poseidon1

I had a slightly different scenario. Leaseholders of a two flat house conversion approached me to buy the freehold. Frankly I had forgotten I owned it and had neither levied ground rents or organised insurance for many years so   a classic absentee freeholder.

Following their approach,  I contacted a specialist chartered surveyor who I  had previously used to organise valuation of a freehold I and other leaseholders wanted to acquire in place of lease extensions where  we lived..

The surveyor conducted a formal desktop valuation having regard to length of leases, ground rents, market values of similar conversions in the immediate area, ie Spinelli valuation principles. I think he charged me £500 around 12 years ago.

Armed with a professionally prepared valuation which I supplied to the leaseholder's solicitors ( in this case £17,000),  my terms to sell were the valuation figure plus my solicitors conveyancing fees but I would waive all past years ground rent arrears other than the current year.

Their solicitor recommended my offer to their client, and the whole process went through very smoothly thereafter ( the advantage of all parties being on the same page ).

The important point you should note is obtaining a professional valuation, rather than simply stick your finger in the air and dream up a number. 

If you have that as your starting point, I agree @eddddy's suggestion that you approach the leaseholders informally to start a conversation going.  You will of course be in a stronger position to incentivise them to purchase from you if the leases are already under 80 years or soon to be and may become questionable for mortgage purposes..

 I note in your long post there is no mention at all of length of leases and associated ground rents, which will partly dictate how much you can sell the freehold on the open market. Bear in mind if you have to resort to the open market, you have pay your own solicitors fees as well as marketing and other sales costs. Therefore a sale to encumbent leaseholders should be your preferred option, if they are willing.

If they are not willing, then appoint a specialist solicitor to commence the formal notice process which will eventually lead to you selling the freehold over their heads. You will need a solicitor in any event so why have a dog and bark yourself?

ZedDown

Thank you both, very useful information - I’m going to start with that informal approach, armed with a proper valuation, and I’m hopeful the leaseholders will be interested. (One of them is close to 80 years, so I think the incentive to buy will be there - I didn’t mention lease lengths or ground rent before as I didn’t think it would affect the sale process, which was my main question, but you’re right (@poseidon1), it will help get everyone on the same page if it’s in everyone’s best interest). 

Thanks again,

Z.

eddddy

ZedDown said:

(One of them is close to 80 years...

  It sounds like you're saying that the leases have different lengths, and perhaps different ground rents.

FWIW, if that's the case, the cost of the freehold shouldn't really be split 50/50 between the two leaseholders.

But maybe you want to leave the leaseholders to argue that out between themselves...


i.e. Maybe you should just say "The cost of the freehold is £20k (or whatever)" and leave the two leaseholders to decide how to split the cost...

... as opposed to you saying "The cost of the freehold is £15k to Leaseholder 1 and £5k to Leaseholder 2 (or whatever)". Even though that's what a valuer would say is fair.

PixieTodd

Would anyone be able advise me with my scenario. I own the freehold to a ground floor flat in a small terrace of purpose built flats each with own front doors and gardens, some of which have their own freehold’s, the flat above me is leasehold as are the two adjoining flats as I had them built on the original large garden that came with my flat. These two have been sold. The flat above me is owned by someone else and rented out when I bought mine.   I now wish to sell the original ground floor flat that holds the freehold/leaseholds of my flat with the leaseholds on the other three.  This is on the open market with an estate agent and I have accepted an offer from a first time buyer who is eager (as am I) to proceed with the sale asap, however, I am confused as to whether I am required to issue Section 5(A) notices to the other three leaseholders before I can continue with the sale.  There are no communal areas, no maintenance fees, no ground rent (peppercorn) and the lease is for another 962 years (999 originally), each flat has own entrances with private gardens.  

If I’m required to offer the freehold to the three leaseholders before I can continue with the sale, what price do I offer the freehold for and are the leaseholders liable to pay my solicitors fees if they wish to buy, do all three have to agree to buy?  The sale price for my flat was on the market including the freehold and leaseholds. 

I have researched as much as I can but most scenarios with this are for houses that have been converted to flats with maintenance costs and communal areas of which these do not have.  I’m hoping someone can advise me in layman’s terms if possible as to whether I’m required to issues these notices (and therefore hold up my sale for two months possibly longer).

Thanking you all in advance for any assistance.

eddddy

PixieTodd said:

Would anyone be able advise me with my scenario. I own the freehold to a ground floor flat in a small terrace of purpose built flats each with own front doors and gardens, some of which have their own freehold’s

<snip>

@PixieTodd It would be much better if you started a new thread with this question.

The original poster has asked a complex question, and you have asked a different complex question.

There's a lot of scope for people to get confused about which question is being answered.

(You should see a red button labeled "+ Create New" near the top of the page, which will allow you to create a new thread.)