Buying a freehold

JCR

We were recently offered the purchase of the freehold of a flat that we own for £1000. At the time our solicitor was saying that this was the "deal of the century". He said that we were getting a bargain. The building only houses three flats, ours and two others, one being a maisonette. The other two flats are both up for sale so the owners were not interested in buying the freehold.

Anyway, yesterday our solicitor rang and said he thought the freehold was now worth £28,000. What I want to know is how can this be? Somebody who wants to buy a flat for say £80,000 is not going to be prepared to negotiate a longer lease for a further couple of thousand - they will just buy a property that already has a longer lease on it. Am I missing something? :rolleyes:

TD5

Hi JCR

I am no expert on freeholds and this is also my first post but I can say that I bought the freehold for a maisonette I owned about 8 years ago for about £1200 if I recall correctly. The freehold covered the upstairs and downstairs maisonnetes both of which paid annual ground rent of £110 combined. From a cost recovery point of view as well as the annual ground rent, I have also been able to recover additional sums from solicitors when tenants have moved or remortgaged which is usually about £50 each time. I was told that this was a typical amount charged by commercial landlords so thats what I have been charging. On top of this, an unauthorised extension was built at some time which required retrospective permission from the landlord - again with a fee. So I suppose what I am saying is that financially I have probably about broken even and I still own the lease although sold the maisonette about 6 years ago.

What I would make clear though is in my case I am not liable for anything such as insurance or maintenance etc. So it was low risk when I bought it and all I really have to do is collect the ground rent once a year and fill in a few questionnaires from solicitors from time to time.

Hope that helps

martinman3

Your solicitor is right, £1000 is the deal of the century, maybe the property is in need of a lot of work. You should always check the state of the maintenance account concerning unpaid service charges for the other two leaseholders (assuming you always paid them yourself).
In spite of this, our solicitor said at the time we purchased ours that when treated just as an investment the state of the property and finances may put some off but because you are a leaseholder the freehold is more valuable to you.

Anyway, yesterday our solicitor rang and said he thought the freehold was now worth £28,000.

You mean that £28000 is the approximate valuation of the freehold not that the price has gone up. Though once the LVT is involved you will be unlikely to get it at a bargain price and you will have to pay the market value, i.e. £28000.

Somebody who wants to buy a flat for say £80,000 is not going to be prepared to negotiate a longer lease for a further couple of thousand - they will just buy a property that already has a longer lease on it. Am I missing something? :rolleyes:

Don't really understand your arithmetic, where does £2000 come from ?
A canny buyer would increase the length of the lease at purchase if they could and needed to. What is the length of your lease ?
The length of the lease is not the only reason that you would purchase the freehold, the other is to ensure that maintenance, insurance is arranged correctly.

Doozergirl

The value of the freehold is dependent mostly on the length of the leases. You need to know this in order to be able to value it. For £1000 I would expect the leases to be either very new or very long!

No, people won't pay £80,000 for a flat with a short lease. Therefore it's often up to the leaseholder to pay for the lease extension to bring the flat back to market value. At £28,000 in value either one of you has a short lease of 50 something years or you all have leases running down around 70 something years.

£1000 for the freehold of any property where the leases are under 99 years is good. Just remember to keep hold of the freehold when you sell; you'll save money on your own lease but make money on the other flats.

JCR

Thanks for those replies.

The maintenance and service records are up to date and the building is in good condition.

Sorry the £2000 came from the negotiating of a longer lease on top of the price of the flat. But as you say the lease would have to be extended by the vendor in order to make it an attractive proposal. I am just getting muddled up with the leases and cannot believe that we would manage to get a good deal.

Thanks again for your replies.

Doozergirl

Ask your solicitor how they arrived at £28,000 They should be able to give you a decent explanation.