Flying freehold and property value

Ekko · 17 June 2017 at 11:29AM

Hi

I have a question about the effect of flying freehold on property value.

Suppose there is a 5 bedroom 3-story house with a cellar (cellar being the same
floor area as the ground floor of the house, with bare walls and not damp proofed).
And suppose the market value of this house is £600,000.

Suppose now that the cellar is converted to a legally seperate dwelling (with its
own front door access). Given the loss of the cellar space, and the resultant status of
flying freehold, approximately what would the likely market value of the (3-story) house
above the cellar now be?

Doozergirl · 17 June 2017 at 11:40AM

Why wouldn't/couldn't the owner of the house create a lease?

It's only a flying freehold if the properties are in separate hands.

eddddy · 17 June 2017 at 12:07PM

As Doozergirl says, the freehold owner of the house would just sell the basement flat on a long lease.

Or the the freehold owner of the house could sell the basement flat on a long lease, and sell the 3 storey house bit on another long lease. (That might make it easier for the buyer to get a mortgage.)

No need for a flying freehold.

If you're planning to buy this property (or own it) with a mortgage, I'm not sure what the lender's position would be about sub-dividing the property. They might refuse consent.

You'd need to ask local EAs (or do your own research) about local property values - as well as researching likelihood of getting planning consent, costs of sub-division etc.

Ekko · 17 June 2017 at 12:38PM

Hi -- thanks very much for your replies. This is a down-sizing idea that I'm researching.
The idea would be to move into the converted cellar and then sell the house above.
I'm just trying to get some idea of the likely approximate value of the house above given
the current market value of the entire house is around £600,000. Doubtless my best bet
is to contact a local estate agent about this.

The flying freehold vs lease is not something I've looked into (in my ignorance, I was
assuming that it would be the former). Naturally, other things being equal, I would choose
the option that would get me a higher sale price.

G_M · 17 June 2017 at 12:53PM

As explained, it's no different to any building with two homes one on top of the other - ie two flats.

One person owns the freehold of the building (the land and structural walls etc)

One person (who may be but does not have to be the same person) owns a lease (say 999 years) for the basement flat.

One person (again same or different) owns a lease for the remainder of the house.

Each of these 3 things (freehold + 2 leases) has a value and can be sold on, either in combination or separately.

I'm no RICS Valuer, but a £600,000 house with a virtually unusable celler will not be worth much more than a £600,000 house no celler. On the other hand, location could be important. In central London, a damp, dark hole in the ground might well have real value. A Hobbit in particulaer would pay through the nose for it........!

Ask 2 or 3 agents.

Ekko · 17 June 2017 at 1:23PM

That's very interesting. Suppose then that I set up the coverted cellar as a leasehold property for myself. I take it then that I would have the option of selling the above house as a leasehold property to a buyer, either with or without the freehold of the land, cellar and house above. But would the freehold be considered of extra value, or could it be considered a liability?

lincroft1710 · 17 June 2017 at 2:26PM

By converting the cellar into a separate basement flat, you will be making the house a less attractive proposition for a potential buyer. It would be far easier to sell the house as it is and buy something else.

G_M · 17 June 2017 at 3:16PM

Ekko wrote: »

But would the freehold be considered of extra value, or could it be considered a liability?

It is both.

* It has a value and can be sold seperately.
* when the house lease ends (in, say, 99 years) the house reverts to the freeholder's ownership
* when the house lease reduces to, say 65 years remaining, few mortgage lenders will lend to a buyer, so the lease owner often decides to extend the lease iebuy extra years from the freeholder. This is a value.
* the lease may stipulate that the leaseholder must not only pay annual maintenance fees (eg for roof maintenance), but also the freeholder's reasonable fees for mamanging the building.

On the downside the freeholder has obligations

* to insure the building each year (though at the leaseholder's cost)
* to arrange maintenance/repairs ((though at the leaseholder's cost)
etc

Ekko · 17 June 2017 at 6:35PM

Thanks GM and everyone else -- I will cogitate!

Ekko · 17 June 2017 at 7:02PM

GM -- thinking about what you said, suppose that, after conversion of the cellar, I
get the legal process done for making the cellar a leasehold property (with a nice long lease)
for me to live in. If I were to then sell the upper house and the freehold of the entire property
to a buyer, does the fact that the buyer owns the land and the entire superstructure mean
that the freehold they own is not a flying freehold, but just a regular freehold (albeit one that
contains a leased out component)?

G_M · 17 June 2017 at 9:50PM

Ekko wrote: »

GM -- thinking about what you said, suppose that, after conversion of the cellar, I
get the legal process done for making the cellar a leasehold property (with a nice long lease)
for me to live in. If I were to then sell the upper house and the freehold of the entire property
to a buyer, does the fact that the buyer owns the land and the entire superstructure mean
that the freehold they own is not a flying freehold, but just a regular freehold (albeit one that
contains a leased out component)?

See post 5 above.

A FF is where 2 freeholds overlap.

Suppose your celler extended beyond the boundary of your property underneath the neighbour's (freehold) house. Your neighbour's kitchen might be above your celler. That would be a FF.

https://en.wikipedia.org/wiki/Flying_freehold

PLEASE READ BEFORE POSTING

Flying freehold and property value

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