Offered the chance to buy a share in the freehold
Discussion
Hi
Am after some guidance from those more in the know. I bought a flat about 18 months ago which is part of a purpose built development of a few blocks of flats, which were built in 1997. My leasehold is a 900+ year lease. As I understand it, the freeholder is going to sell the freehold and the current leaseholders have right of first refusal to buy the freehold (i.e. set up a company which will own the freehold and each leaseholder who participates will own a share in that company). The estimated cost of purchasing my freehold is around £5,000 (although this is not currently a firm figure). From initial communications it looks like a majority of the current leaseholders have expressed an interest in purchasing the freehold.
I suppose my main question is should I purchase the freehold and if so why i.e. why is that beneficial for me going forwards?
Would it be the case that I then wouldn't need to pay yearly ground rent? At the moment the ground rent is £350, so it would take like 15 years to reap that benefit if it is one.
Would owning the freehold increase the value of my flat?
Any other comments, points to note or guidance would be really appreciated too.
Many thanks.
Am after some guidance from those more in the know. I bought a flat about 18 months ago which is part of a purpose built development of a few blocks of flats, which were built in 1997. My leasehold is a 900+ year lease. As I understand it, the freeholder is going to sell the freehold and the current leaseholders have right of first refusal to buy the freehold (i.e. set up a company which will own the freehold and each leaseholder who participates will own a share in that company). The estimated cost of purchasing my freehold is around £5,000 (although this is not currently a firm figure). From initial communications it looks like a majority of the current leaseholders have expressed an interest in purchasing the freehold.
I suppose my main question is should I purchase the freehold and if so why i.e. why is that beneficial for me going forwards?
Would it be the case that I then wouldn't need to pay yearly ground rent? At the moment the ground rent is £350, so it would take like 15 years to reap that benefit if it is one.
Would owning the freehold increase the value of my flat?
Any other comments, points to note or guidance would be really appreciated too.
Many thanks.
Owning the freehold will/should increase the price of the property. You will still need to pay the £350, as this will generally pay for maintenance and upkeep of the building. I guess if the freeholder isnt taking a profit the ground rent might come down a bit, but you'll still need to pay something for upkeep, and I doubt it will change by that much.
If you can afford it, it seems like a good idea.
If you can afford it, it seems like a good idea.
Condi said:
Owning the freehold will/should increase the price of the property. You will still need to pay the £350, as this will generally pay for maintenance and upkeep of the building. I guess if the freeholder isnt taking a profit the ground rent might come down a bit, but you'll still need to pay something for upkeep, and I doubt it will change by that much.
If you can afford it, it seems like a good idea.
Owning a share of the freehold does not materially increase the value of the property, especially given that the lease is 900 years.If you can afford it, it seems like a good idea.
What it does do is increase the ease with which it would sell. This would become especially prevalent were there two flats in the block for sale in the same block, one being leasehold and the other share of freehold. The leasehold flat would be the last to sell.
Ground rent is separate to service charge. The ground rent will cease but the service charge will continue, what you can avoid with a share of freehold is the need to pay managing agent's fees, should the various owners decide to run the building themselves.
One problem (with a block particularly as opposed to a converted house) is you need someone to run the company. So not as straightforward as it sounds. Someone might be interested in doing it which is great, but what happens if they sell / die who takes over; what if they are in a clique with others and decide to spend a ridiculous amount on a vanity project which you disagree with etc.
CoolHands said:
One problem (with a block particularly as opposed to a converted house) is you need someone to run the company. So not as straightforward as it sounds. Someone might be interested in doing it which is great, but what happens if they sell / die who takes over; what if they are in a clique with others and decide to spend a ridiculous amount on a vanity project which you disagree with etc.
This too. Hi
Just from a one time Valuer's point of view:
Owning the leasehold will not make it more valuable, but as suggested might make it more interesting to buyers - especially ones who have had poor management companies to deal with in the past.
However,
I think the previous poster might be confused, as you would not have to pay the ground rent still- as the name suggests, this is money given to the freeholder as a rent for using the land. What you would still have to pay is the management/maintenance fees. If you own the freehold, you at least have more choice about the amount you wish to pay, or the company you choose to run it. But be careful; management companies exist for a reason. Someone has to organise the continuous maintenance schedule of the flats, owned by numerous people. Don't think that owning the freehold will mean one of the residents will just do it (well, the might - but for how long?).
Also (slightly O/T), please do not get this confused with a 'freehold apartment'. This would still be a leasehold apartment, in which you own a fraction of the lease. It is NOT a good thing to have a freehold apartment, despite what others may say. Many mortgage companies will not lend on a leasehold apartment as there is less regulation on what others do to their property, which would in turn adversely affect yours. Also, someone has to own the communal areas - something not really easy to divvy up if the apartment is freehold.
Phil
Just from a one time Valuer's point of view:
Owning the leasehold will not make it more valuable, but as suggested might make it more interesting to buyers - especially ones who have had poor management companies to deal with in the past.
However,
I think the previous poster might be confused, as you would not have to pay the ground rent still- as the name suggests, this is money given to the freeholder as a rent for using the land. What you would still have to pay is the management/maintenance fees. If you own the freehold, you at least have more choice about the amount you wish to pay, or the company you choose to run it. But be careful; management companies exist for a reason. Someone has to organise the continuous maintenance schedule of the flats, owned by numerous people. Don't think that owning the freehold will mean one of the residents will just do it (well, the might - but for how long?).
Also (slightly O/T), please do not get this confused with a 'freehold apartment'. This would still be a leasehold apartment, in which you own a fraction of the lease. It is NOT a good thing to have a freehold apartment, despite what others may say. Many mortgage companies will not lend on a leasehold apartment as there is less regulation on what others do to their property, which would in turn adversely affect yours. Also, someone has to own the communal areas - something not really easy to divvy up if the apartment is freehold.
Phil
CoolHands said:
One problem (with a block particularly as opposed to a converted house) is you need someone to run the company. So not as straightforward as it sounds. Someone might be interested in doing it which is great, but what happens if they sell / die who takes over; what if they are in a clique with others and decide to spend a ridiculous amount on a vanity project which you disagree with etc.
Can not see a problem in managing one's own finances, surely got be better than leaving it to the freeholder. As a person that has purchased with other leaseholders the freehold, one can form their own limited company, and either self manage or engage an agent to manage.
With other leaseholders, we have gone down the self manage route, making considerable financial savings on agent's fees, accountancy fees, building insurance etc. etc., those savings going into the fabric of the building.
CoolHands said:
One problem (with a block particularly as opposed to a converted house) is you need someone to run the company. So not as straightforward as it sounds. Someone might be interested in doing it which is great, but what happens if they sell / die who takes over; what if they are in a clique with others and decide to spend a ridiculous amount on a vanity project which you disagree with etc.
This need not be a problem, when incorporating your company ensure the articles and memorandum of association cover such stuff, how decisions can be made etc. Ensuring 100% agreement for any changes etc is included. We included such things about pets, wooden floors and right to buy the freehold from a selling leaseholder. All of it designed to be helpful to all parties and maintain harmony.Taking control of a freehold is a good idea, it just needs to be administered sensibly. My neighbour looks after our as he's retired and I let him get on with it paying my ground rent and service fees twice a year. This builds a pot for exterior redecoration and minor maintenance. The accountant who signs off the annual return also suggested the cash we pay in is declared as loans to the business.
As others have said, this won't increase the value of the leasehold should I choose to sell but will make it attractive to a purchaser giving certainty. If the incomer wants to buy into the freehold they need to buy my share so I get my money back (albeit at a non inflation linked value).
Edited by truck71 on Saturday 28th March 19:31
With that many flats it could become a PITA to manage. Who will manage the 'estate' once the existing freeholder has gone? How much could you potentially save on the current service charge? You may well end up having to pay a management company to look after everything, will they be any cheaper? All these things need to be thought about.
If it was a smaller block, say 6/8 flats then in can be a good move. Every owner is a part freeholder, someone steps up and 'manages' everything.
In your case I cannot see a great advantage, you have a long lease but will the potential savings in ground rent and service charges offset the cost of buying a share of the freehold and the potential aggravation?
If it was a smaller block, say 6/8 flats then in can be a good move. Every owner is a part freeholder, someone steps up and 'manages' everything.
In your case I cannot see a great advantage, you have a long lease but will the potential savings in ground rent and service charges offset the cost of buying a share of the freehold and the potential aggravation?
megaphone said:
With that many flats it could become a PITA to manage. Who will manage the 'estate' once the existing freeholder has gone? How much could you potentially save on the current service charge? You may well end up having to pay a management company to look after everything, will they be any cheaper? All these things need to be thought about.
If it was a smaller block, say 6/8 flats then in can be a good move. Every owner is a part freeholder, someone steps up and 'manages' everything.
In your case I cannot see a great advantage, you have a long lease but will the potential savings in ground rent and service charges offset the cost of buying a share of the freehold and the potential aggravation?
The development is already managed by a mangagement company who seem very good and the service charge I pay is reasonable for London. I am not 100% sure but I think the management company is in some way separate from the freeholder and in some way connected to the residents.If it was a smaller block, say 6/8 flats then in can be a good move. Every owner is a part freeholder, someone steps up and 'manages' everything.
In your case I cannot see a great advantage, you have a long lease but will the potential savings in ground rent and service charges offset the cost of buying a share of the freehold and the potential aggravation?
Yes looking for advantages to me shelling out £5k was the purpose of the thread
Sir Bagalot said:
You might want to check the ground rent. Normally at that level they are rising, ie they double every 25 years.
Bear in mind it may cost you more as other leaseholders may not be interested. If not then your cost goes up but you will have a return on ground rent they pay.
I think these are very important points. I will check/consider. Bear in mind it may cost you more as other leaseholders may not be interested. If not then your cost goes up but you will have a return on ground rent they pay.
Worst scenario would be I suppose for the new 'freeholders' (i.e. the majority of the tenants as it is looking like currently) then decide they want to crank up the ground rent year on year for those few who did not purchase a share of the freehold.
I also think the right of first refusal for the current leaseholders to purchase and doing so is likely in part a defensively motivated move i.e. no clear major benefit in purchasing a share of the free hold but the existing leaseholders doing so stops a more, shall we say, "commercially minded" company from purchasing the freehold.
Chunk49 said:
Sir Bagalot said:
You might want to check the ground rent. Normally at that level they are rising, ie they double every 25 years.
Bear in mind it may cost you more as other leaseholders may not be interested. If not then your cost goes up but you will have a return on ground rent they pay.
I think these are very important points. I will check/consider. Bear in mind it may cost you more as other leaseholders may not be interested. If not then your cost goes up but you will have a return on ground rent they pay.
Worst scenario would be I suppose for the new 'freeholders' (i.e. the majority of the tenants as it is looking like currently) then decide they want to crank up the ground rent year on year for those few who did not purchase a share of the freehold.
I also think the right of first refusal for the current leaseholders to purchase and doing so is likely in part a defensively motivated move i.e. no clear major benefit in purchasing a share of the free hold but the existing leaseholders doing so stops a more, shall we say, "commercially minded" company from purchasing the freehold.
Remember that you would also get a return on Ground rent from leaseholders who decide not to buy into the freehold. Yes, the danger is always there for a more commercially aware firm to snap it up, but they can only do this if the majority of current free holders say no.
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