Freeholder low balls offer to buy me out. What do I do next?

Freeholder low balls offer to buy me out. What do I do next?

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Behemoth

Original Poster:

2,105 posts

130 months

Tuesday 2nd September 2014
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For many years, I've owned a flat in central London and it has relatively little mortgage left to pay on it. It's on top of an office block that the new freeholder has now got permission to turn residential. He wants to buy me out and wants to contract quickly.

They've low balled me an offer which is 5% below the bottom of Zoopla estimate and takes no account of my transaction costs to stay still. I rent my flat out, so to be standing still will cost me loads in stamp duty, CGT, a search for new property etc etc. In addition, his net internal area offer doesn't consider valuable common areas which I have leaseholder rights to, both private (garage, balconies) and shared (roof terrace, garaging, utility and plant rooms).

My aim is to sell if all my costs are covered and a meaningful sum is added for the sheer inconvenience of it all. Otherwise I would stick and let them build what they want underneath me. The value to them of my redeveloped flat plus its various bits of leasehold common area must be substantially above the market price of my flat alone today. There are a dozen other leaseholders in a similar situation but I can't see us being able to negotiate as a team.

It's the beginning of the negotiation process. Aside from first getting my place valued by 2 or 3 local agents, how should I respond & proceed? Any constructive advice is most welcome.

Pheo

3,324 posts

201 months

Tuesday 2nd September 2014
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First thing is to consider resetting the frame by engaging independent agents smile

Just been on a good decision making course - says be careful with this kind of thing as now you'll automatically frame any counter offer from his initial one. Instead I would forget about it, get it valued, add your costs + whatever profit / inconvenience / future earnings potential.

what happens to him if you don't sell?

Renovation

1,763 posts

120 months

Tuesday 2nd September 2014
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Personally I'd work out what would be a high enough price for me to be pleased with the deal.

I have dealt with trying to buy small bits of property and there are always a few who are so greedy the deal either goes ahead without them or gets dropped.

Equally if you do not wish to sell then ask for a crazy amount and stay if it's not met.

The problem with a valuation is it's worth one amount to you, another to him and the market value is different again

Behemoth

Original Poster:

2,105 posts

130 months

Tuesday 2nd September 2014
quotequote all
Pheo said:
what happens to him if you don't sell?
He can still build out downstairs, but he doesn't get access to a very valuable top floor, ground floor garaging etc. He cannot, as far as I understand, force a sale. In fact, I believe his initial freehold transaction is suspect as I was never offered a right to buy. I'm still trying to find out the full implications of this but at the very least, it has him on the back foot.

Good point about reframing. But I have to be sure any offer I put forward includes the true potential of the property and not just the current market value of my flat + costs. To pin that down, I think I need more than a bog standard estate agent.

elanfan

5,516 posts

226 months

Tuesday 2nd September 2014
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Also consider you have what will be the future Penthouse which once redeveloped will presumably sell for a lot of money.

Oi_Oi_Savaloy

2,313 posts

259 months

Tuesday 2nd September 2014
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More important still is this to consider: what's to stop him from going for an enhanced consent once he's bought you out? He could resubmit planning to drop the existing building (after he's bought you out and owns it all) for a much larger redevelopment.

I'd be thinking about a planning overage in the sale contract (if you decide to sell that is) to protect your future interest in the site. Plus a clawback too (just in case he sells the site on for a huge uplift once he's bought you out either now or after an enhanced consent has been captured).

Behemoth

Original Poster:

2,105 posts

130 months

Wednesday 3rd September 2014
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Sound advice, thank you for the responses. For clarification, it isn't just me at the top & though some are with my train of thought, we'd be hard pressed to get everyone singing from the same hymn sheet.

Oi_Oi_Savaloy

2,313 posts

259 months

Wednesday 3rd September 2014
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If you (leaseholders) are all talking then perhaps it's worth trying to buy the freehold yourselves and then taking advantage of the re-development potential of the site?


Davey S2

13,075 posts

253 months

Wednesday 3rd September 2014
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Behemoth said:
In fact, I believe his initial freehold transaction is suspect as I was never offered a right to buy. I'm still trying to find out the full implications of this but at the very least, it has him on the back foot.
You may not have qualified for collective enfranchisement. There are several tests but one is that the building won't qualify if more than 25% of the internal floor area, excluding common parts, is not used for residential.

You mentioned that the main part of the building is offices so if there are only a few flats then you may not satisfy the criteria

Behemoth

Original Poster:

2,105 posts

130 months

Wednesday 3rd September 2014
quotequote all
Davey S2 said:
You mentioned that the main part of the building is offices so if there are only a few flats then you may not satisfy the criteria
The building was mainly office and has now been reclassified fully residential. So yes, we couldn't before. But we can now.

Behemoth

Original Poster:

2,105 posts

130 months

Wednesday 3rd September 2014
quotequote all
Oi_Oi_Savaloy said:
If you (leaseholders) are all talking then perhaps it's worth trying to buy the freehold yourselves and then taking advantage of the re-development potential of the site?
Yes, we've looked into that. But it's too big a project for most, even as an empty shell.

CAPP0

19,533 posts

202 months

Wednesday 3rd September 2014
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If it's any help, my parents' house was compulsorily purchased some years back, by the government, and they were offered market value +10%. Not exactly the same situation obviously but may be a yardstick to work by?

Behemoth

Original Poster:

2,105 posts

130 months

Wednesday 3rd September 2014
quotequote all
CAPP0 said:
If it's any help, my parents' house was compulsorily purchased some years back, by the government, and they were offered market value +10%. Not exactly the same situation obviously but may be a yardstick to work by?
I feel for your parents - it's a paltry sum considering the major expenses involved in searching & moving. We're in a more complex and commercial situation, so 10% over market is nowhere near good enough. But as you suggest, it shows how totally off the low-ball offer actually is.

sjc

13,884 posts

269 months

Wednesday 3rd September 2014
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Forget his valuation,you decide what you want for it, and then give him the option of paying it or not?

z4RRSchris99

11,221 posts

178 months

Wednesday 3rd September 2014
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Behemoth said:
Yes, we've looked into that. But it's too big a project for most, even as an empty shell.
pm me. you could be sitting on a gold mine.

AndrewO

647 posts

182 months

Wednesday 3rd September 2014
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How many years on your lease ?

Behemoth

Original Poster:

2,105 posts

130 months

Wednesday 3rd September 2014
quotequote all
AndrewO said:
How many years on your lease ?
Just over 100

AndrewO

647 posts

182 months

Wednesday 3rd September 2014
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Sit tight ! You will be unlikely to negotiate a price close to what it will be worth after the improvements. CGT will also wipe 40% of your profit if you sell (assuming you never lived there)

Behemoth

Original Poster:

2,105 posts

130 months

Thursday 4th September 2014
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AndrewO said:
You will be unlikely to negotiate a price close to what it will be worth after the improvements. CGT will also wipe 40% of your profit if you sell (assuming you never lived there)
I'm not sure about that. Redevelopment of the complete building rather than just the floors below me will yield way more £/sqft than existing.

40% CGT?? Who is advising you? wink CGT is 28% (18% if basic) and has various offsets. But still, it's certainly a tidy sum that has to go into the thinking.

AndrewO

647 posts

182 months

Thursday 4th September 2014
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Behemoth said:
I'm not sure about that. Redevelopment of the complete building rather than just the floors below me will yield way more £/sqft than existing.

40% CGT?? Who is advising you? wink CGT is 28% (18% if basic) and has various offsets. But still, it's certainly a tidy sum that has to go into the thinking.
For sure, give them a price or let them offer first ?

Don't know what I was thinking with 40%, either getting mixed up with higher rate tax or gone back in time 10yrs