My daughter lives in one of six flats in a a converted Edwardian house. Each flat has an equal share in the management company, which they pay into for common maintenance etc.
The freeholder has approached the management agent and offered the freehold to the management company for what I think is a very good price, £7,500 plus expenses.
Are there any reasons why that might not be a Good Thing?
And more importantly, what's to stop them then giving themselves each a 999 year lease? (Or doing away with the leases and signing over the freehold, but I imagine that's less desirable in a shared building) - I'm thinking that maybe while they have a solicitor engaged on transfer of freehold, writing up new leases may not cost much more (in fact I suppose it could already be in the price).
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Buying the freehold will not change the charges for maintenance and management.
What will change is that any ground rents will be paid to the new freeholder (the management company) which will benefit the flat owners. And as far as I am aware the freeholder could agree to write new longer leases and/or change the ground rent.
You will incur some legal costs, particularly if you want to change the leases. You need to make sure that you get the ducks in a row in terms of ensuring that the management company go through the right processes to buy the lease - eg:
- do all flats need to agree for it to happen or majority vote,
- does the management company have the cash in its reserves to buy the freehold
- what happens if one of the flat owners does not want to play ball
- etc etc
Final point - the current freeholder may simply want to sell his investment and (I think) is legally obliged to offer to the existing leaseholders first.
Check the lease to ensure that there are no hidden pitfalls - eg: the freeholder may have an obligation to repair certain aspects of the structure and wants to offload the risk or responsibility.
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Thanks.
To clarify, the freehold is offered to the "management company" which is the 6 flat owners, not including the one I'm calling the managing agent. So just the flat owners will be joint freeholders.
There are adequate reserves in the communal pot to cover the cost and anticipated legal fees, though as it will leave it a bit short for some planned external maintenance, they may well ask everyone to stump up a bit more (which of course may meet resistance).
I've noted your other points and will look into them.
I suppose if the flat owners have first refusal, and refuse, then it could go elsewhere which may not be desirable.
(btw my daughter and another owner are the tenants "reps" with the managing agent which is why the two of them know about this in advance)
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I often see mention of Freehold and Leasehold in English properties.
All sounds rather complicated!
Is Leasehold common?
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>> I often see mention of Freehold and Leasehold in English properties.
>> All sounds rather complicated!
>> Is Leasehold common?
>>
>>
For houses not particularly, its more a flat thing.
How does it work in Scotland?
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In Scotland Leasehold is not a term used in housing.
The house owner either owns the land OR the land is a Feu.
A Feu is a ground rent and the householder pays it typically annually.
The Feu is 999 years so no real issues.
I bought my house the Feu was £25 every 6 months - I paid a one off payment in 1988 and no longer pay anything. If a house is still paying the Feu it will be redeemed when the house is sold on.
When I was a boy the Feu-duty was £1 on an 1896 house - a bill for £1 would come in from a local solicitor for everyone in the street - 100 or so houses - £100 would be about 3+ months take home pay for a teacher in 1960. The feu holder had thousands of feus in my town and surrounding area.
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Sounds similar to England.
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For the vast majority, your property is your property.
For flats , typically the flat itself is yours, you may also own certain parts of the garden ground according to Title conditions etc and you will have a part share in the Solum ie the footprint of the actual building.
Repairs, maintenance etc is dealt with through an appointed factor.
Not far from me, there was a block of flats which became derelict and got demolished. It is now used as a fly tipping area. However when you check to see who owns it, all the original flat owners are still listed so the Council says the problem has nowt to do with them!
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All sounds rather complicated! ;)
Last edited by: sooty123 on Thu 13 May 21 at 12:10
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>> I often see mention of Freehold and Leasehold in English properties.
>> All sounds rather complicated!
>> Is Leasehold common?
It's more or less universal for flats as it's the means by which common obligations to maintain etc. are managed and enforced. There was an attempt to replace it a few years ago by a concept called Commonhold but I don't think it took off. How does that work in Scotland?
Leasehold for houses is, or rather was, uncommon. Tended to be a regional thing. South Wales for example had a lot of it and it was a matter of considerable controversy and activism in some locales. Same in some areas of London. The Leasehold Reform Act 1967 provided a means by which leaseholders could buy the freehold but it could be expensive if the landlord wanted to 'go the distance' with appeals which ultimately went to the Lands Tribunal - effectively a court with lawyers and experts needed.
In England it's made a bit of a comeback recently with big developers selling houses leasehold with ground rents that my double every few years. As well as the ground rents there are management fees and charges for permission to extend/alter. Basically a goldmine for the developer to sell on. There are now problems where these houses are effectively unmortgageable and unsaleable. Government is supposed to be acting but progress is slow.
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>>
>> In England it's made a bit of a comeback recently with big developers selling houses
>> leasehold with ground rents that my double every few years. As well as the ground
>> rents there are management fees and charges for permission to extend/alter. Basically a goldmine for
>> the developer to sell on. There are now problems where these houses are effectively unmortgageable
>> and unsaleable. Government is supposed to be acting but progress is slow.
In a free society one has the option not to buy those properties on those terms.
Also it makes sense to decline the generous offer from the developer of the use of their solicitor at very favourable terms.
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>> In a free society one has the option not to buy those properties on those
>> terms
>> Also it makes sense to decline the generous offer from the developer of the use
>> of their solicitor at very favourable terms.
In order to exercise the option no to buy one first needs to understand the terminology and the consequences of buying leasehold. One's chances of doing so are greatly decreased if your conveyancer is either working for the other side or a cheap 'factory' deal.
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>> In order to exercise the option not* to buy one first needs to understand the
>> terminology and the consequences of buying leasehold. One's chances of doing so are greatly decreased
>> if your conveyancer is either working for the other side or a cheap 'factory' deal.
*Teensy edit.
I think that was the nub of my post.
You aren't saying that you agree with me - are you?
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>> I think that was the nub of my post.
>>
>> You aren't saying that you agree with me - are you?
I'd taken your primary meaning as meaning the buyer had a choice and that government should not interfere with the market. I agree wholeheartedly with the point about seller provided conveyancing.
After posting I had a memory flash and recalled writing a note for my son on the subject. He'd been present during a discussion with his g/f's sister and her chap about leaseholds (they were prospective first time buyers) and had volunteered me as somebody possibly in the know.
The information in my note was not passed on and a leashold house (new build) bought. I hope that my fears about mortgageability upon resale are not realised.
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>Government is supposed to be acting but progress is slow.
"My Government will help more people to own their own home whilst enhancing the rights of those who rent. Laws to modernise the planning system, so that more homes can be built, will be brought forward, along with measures to end the practice of ground rents for new leasehold properties [Planning Bill, Leasehold Reform (Ground Rent) Bill]."
Her Maj today.
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>> "My Government will help more people to own their own home whilst enhancing the rights
>> of those who rent. Laws to modernise the planning system, so that more homes can
>> be built, will be brought forward, along with measures to end the practice of ground
>> rents for new leasehold properties [Planning Bill, Leasehold Reform (Ground Rent) Bill]."
>>
>> Her Maj today.
'New Style' leasehold for houses must have been going on for ten years. The Law Commission reported on it ages ago. Nothing in the quote above to cover those bitten in current leaseholds.
I'll stick with my original assessment.
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One might suggest that if one believes change is necessary then dismissing potential change out of cynicism might not be the smartest approach.
Driving as much enthusiasm about it as possible to hopefully make it more difficult / impossible to drop would perhaps be more appropriate.
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>> One might suggest that if one believes change is necessary then dismissing potential change out
>> of cynicism might not be the smartest approach.
>>
>> Driving as much enthusiasm about it as possible to hopefully make it more difficult /
>> impossible to drop would perhaps be more appropriate.
Tactically you may have a point but what's proposed seems to miss helping those who bought innocently and are now trapped in unsaleable homes.
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>.. but what's proposed seems to miss helping those who bought innocently and are
>now trapped in unsaleable homes.
Didn't you read the report about the Bill? It's on the HoC Library website.
Para 17 states:
"In the specific case of Bromp's sons's girlfriend's sister and her "chap", the Bill will guarantee availability of a mortgage to unwarypotential purchasers."
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>>what's proposed seems to miss helping those who bought innocently and are now trapped in unsaleable homes.
I'm sure you're right. It'd be a b***** miracle if the law started off actually doing what everybody thinks is needed. But it ain't gonna get there with dismissive negativism, is all I'm saying.
Managing politicians is like training dogs and kids. They don't come quicker next time because you slapped them for being slow this time.
Last edited by: No FM2R on Wed 12 May 21 at 21:57
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>>Check the lease to ensure that there are no hidden pitfalls - eg: the freeholder may have an obligation to repair certain aspects of the structure and wants to offload the risk or responsibility.
And this is where I would start.
Let us say that #1 daughter & cohorts would pay [say] £15,000 and think the deal was reasonable, why are they being offered it for £7,500
1) Current owner is an idiot
2) Current owner has a life pressure that is not known by #1 daughter
3) Current owner knows something that #1 daughter does not.
Essentially that means there is a 2/3 chance that daughter #1 is not in possession of all the knowledge she needs.
My guess, there's an impending / possible / potential liability that the current owner would like to avoid. That doesn't mean that the deal should not be done, but it probably does mean that it is a gift horse into whose mouth staring should occur.
Also do beware of the procedural pitfalls, some of which were mentioned by Terry and ensure that considered thought is involved. Or a solicitor that you can sue - either/or.
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You need advice from a valuation surveyor who is expert in leasehold extension and leasehold enfranchisement. The main firms who do this are based in London and Birmingham but I am one of few people outside those cities who also do it, although its by no means my main work.
The legislation covering it is from 1993 and the place to go for a general explanation of it is www.lease-advice.org, a government funded website which is very helpful.
The calculation for buying the freehold can be very easy or very complicated depending upon the ground rent payable and how long to go before the leases expire.
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Thank you all.
I'm going to do a bit more digging as firstly I have no real idea whether £7500 is a good price or a rip off! Also try to get her to tread carefully. There is no rush, after all (as far as I know).
I suppose one thing I was thinking was that if they don't buy it then it'll be sold to someone else anyway, which may work against them.
What sort of liability are you thinking of Mark, just so I can put it in perspective for her?
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Without knowing any of the details, £7500 for the whole block (£1250 per flat) is probably worth doing to have control of the block. This assumes there are no "hidden" risks or issues.
If the existing leases are short (eg: less than 60-70 years), an extension to the existing leases made possible by acquiring the freehold may be reflected in an increased value of the flats.
These are slighty emotive or difficult to quantify issues. Strictly, the value of a freehold is related to the income it produces - the discounted future value of the cash flows from the ground rents.
A bit simplistically - how much would you pay today to avoid paying ground rent in the future. It is the long term interest rate and risk that is important - usually assumed aroun 4-5%.
So paying £1250 to save (say) £50 ground rent would make financial sense. But IMHO the emotive, control and risk issues should dominate the decision - £50 pa is trivial by comparison.
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>>What sort of liability are you thinking of Mark, just so I can put it in perspective for her?
Difficult to say. Partly I am no expert other than my own experience and partly because one would need to know this lease contract, these leaseholders and this building.
I would want to know why the Freeholder is offering it for sale. There are good reasons of course, but it's always better to know. I always ask why someone is selling anything I want to buy, be it a car, a bicycle or a freehold.
I suppose that post things would affect the price rather than the desirability of purchasing, not least because of the reasons Terry spoke of.
I guess there could be some awareness of major works required on the building, and simply wanting to avoid the hassle. Perhaps one or more of the tenants are a level of credit risk and the freeholder doesn't think they can/will pay their share.
Maybe something is going on around the building which will significantly change the value of the freehold, and perhaps the leases also.
Perhaps there is someone else the freeholder wants to sell to but has to offer it to the leaseholders first.
Perhaps there is something wrong with the construction making it uninsurable going forward.
Or maybe the freeholder needs money, or is ill, or just doesn't want the hassle.
I guess the point is that I don't know. And I don't like dealing with things when I don't know.
My primary questions would be; "Why sell at all?", "Why sell now?", "What will you do if we don't buy?" and then "Why this value?"
Last edited by: No FM2R on Wed 12 May 21 at 16:14
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Hmmm yeah, there are plenty of potential pitfalls aren't there. Thanks for that. She's currently sounding out the other tenants to see how interested they are before moving on it. I'm also in contact with Netsur offline so there's plenty going on!!
Once again, I really appreciate the advice from you guys, thanks.
Last edited by: smokie on Wed 12 May 21 at 16:42
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One thing I would ask Netsur;
Leaseholders have a right to buy their freehold if there are enough of them, I believe. If they turn down the opportunity this time, can they still enforce that right in the future?
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Yes and No...
A freeholder wishing to sell a block of flats let on long leases needs to serve a Section 5 Notice on the lessees specifying a price to buy. If they decline or do not respond he can sell at any price above the Notice price but not below. If he sells, the new freeholder must follow the same rules if he wants to sell.
The lessees can force the sale of the freehold (I think!) but there are rules on qualifying lessees and the vehicle used to acquire the freehold...
It's not simple and not always logical but not rocket science either.
The website I mentioned earlier is incredibly helpful and free of bias.
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Further to the tangent upthread about reform of leaseholding the Gazette today has an article on preparing for Commonhold:
www.lawgazette.co.uk/news/advisory-panel-to-prepare-housing-market-for-commonhold/5108513.article?
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I appreciate that this is looking forward rather than relieving existing problems, but it's a good thing, isn't it?
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>> I appreciate that this is looking forward rather than relieving existing problems, but it's a
>> good thing, isn't it?
Absolutely. I added as 'of interest'.
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It all stems from a stupidity in English law that positive covenants do not 'run with the land' (you can force someone to do something even if they are the third owner of the land after two parties agreed to a contract) whereas negative covenants do.
So, the requirement not to use the land or property for the sale of alcohol binds all future owners of the land. The requirement to paint a fence every year only binds the person who agreed to do that.
You cannot force someone to pay service charge, so flats have to held leasehold to ensure that the contract remains in force. In most other countries (e.g. Scotland), flats are held in the equivalent of freehold and there is an obligation to comply with positive covenants.
By a single stroke of the pen a Government could solve the problem going forward. However it would have to deal with existing leasehold property and compensate freeholders who had bought something of value to them which was being undermined. We also have to differentiate between the older leasehold interests in which there was no intention to 'scam' purchasers, and the actions of house builders over the last 20 years which have certainly moved towards that category.
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Buying the freehold of a leasehold flat - Terry
