Is it worth buying the freehold on my block of flats?

[richb]

I own the leasehold on a basement flat in Portsmouth it's one of a Victorian house of 5 flats. The freeholder has written to me to ask if I want to buy th freehold fro him, so I have a few questions; What would be the advantages of owning the freehold? I can see that I can then charge the ground-rent and obviously not have to pay ground-rent myself however in return I would have to do the maintenance. So is there an advantage? Also assuming each flat is worth £130k, there are 5 of them and each has 75-80 years left to run on the lease, how do you place a value on the freehold? Cheers Rich...

[ZED sump]

have been finally told yester i'll be getting share of freehold when the remaing 3 flats (me being one)in my 18 flat block complete their leasehold extension purchases... wouldn't buy freehold for your whole block (yourself) cos u'd be responsible for: external maintenance, block management and administration (or get a property management co to do it for u) etc... would buy it if it's a share of the freehold. this gives you a say in what goes into your lease - rules, g/rent fee, service charge, how things are to be done to do with the block etc. without any part of the freehold you are at the mercy of whoever owns it, even if it's the other 4 flats. in order to sell at normal market value your flat really needs to have atleast 55-65 yrs left on the lease because mortgage lenders (from my recent exp) only normally issue a (standard) mortgage if the property will have 30-40 yrs left on the lease when you retire (ie at the end of your mortgage life)(equity reasons- can explain...)
my lease extension will be £12500 (999yrs) and the freehold will be the cost of the certificate - zilch

[SJobson]

The value of the freehold is going to be based on the ground rents at some low-ish yield like 5%. Say £100 a year for each flat (including yours), £500 per annum gives £10,000 for the freehold. Often ground rents are stepped (increasing every 30 years, say) which could mean it's a worthwhile investment if you hang on to it.

There is a right for a proportion of residential tenants to jointly acquire the freehold (I think it takes 80% of them), so if the other tenants decided to gang together, they could acquire it from you. There is a formula for working out price - worth investigating if you buy because you don't want to have to sell at a loss afterwards.

You might discount the price for the hassle factor of having to run the maintenance, but if you don't mind doing so, you'll be able to keep your service charge cost down and (depending on the wording of the other leases) will probably have a reasonably wide discretion as to how work is done. However, there are some statutory restrictions on recovering service expenditure from residential tenants (not likely to be relevant for simple maintenance, but relevant if the landlord is making improvements).

The other benefit is that you'll have no need to grant yourself a lease extension - there are statutory rights for residential tenants to extend their leases, at a cost. That's your other potential for profit.

[Eric Mc]

Get some legal and professional advice (surveyor/architect etc) before committing yourself to anything.

[Piglet]

Eric Mc said:

Get some legal and professional advice (surveyor/architect etc) before committing yourself to anything.

and be aware that your freeholder is probably only notifying you because he's obliged to. He probably has a buyer lined up and although with a number of qualifying tenants you can force him to sell to you, if he's already had an offer I think you have to match that.

The law on this stuff has changed fairly recently and you really should get good advice.