To buy the freehold, or not to buy the freehold, that is the question?

[DanielB]

Hi There,

We have been offered the sale of the freehold by the landlord. Initially this sounds ideal, as we have been trying hard to get rid of the influence of the current freeholder as we feel they are not operating in the best interests of the leaseholders. However, after some research I am not sure whether the cost of such an exercise will give us much benefit.

The freeholder has offered us the sale at 120,000 GBP + VAT + legal Fees + Any outstanding debt (e.g. non paid service charges).

The details of the building are:
- 30 flats
- Average price would probably be about 215,000 GBP (in the current market).
- Ground rent is 300 GBP per year.
- Average leasehold length would be 123 years.

If I plug these details into http://www.freeholdcalculator.com/calc.php I basically dont see any value in doing so at the price they are asking.

The questions that immediately come to mind are:
1. Is the asking price too much. Considering the length of term left on the leases, is there really that much value in the freehold?
2. Typically they say that owning a part of the freehold improves the value of the property, but in this case again with such a long lease does it really?
3. Is it right that we should also have to buy out the outstanding debt, I mean this is their inability to collect it from current lease holders not ours.

The main benefit we see in pursuing this is that we can appoint a managing agent or run it ourselves, meaning that a lot of our outstanding issues would be in our power to fix.

If we had 51% of agreement within the building, what costs would associated to invoking RTM? this potentially would achieve the same thing?

Regards

Dan

[JK0]

I plugged your figures into that website, and it came up with a total of £172,530. Aren't you getting a bargain?

By the way, does your ground rent stay at £300 for the next 123 years? If it increases, you are getting even more of a bargain.

I think it is fair enough for them to ask for remaining sums owing. The management company of one of my buy to let flats is presently trying to buy the freehold. I think if we were offered a deal like that we would snap it up.

(We are fed up with the freeholders Simarc who charge £100 to receive notice that we are letting our flats. They even tried charging for renewals until I took them to the LVT.)

[sgclacy]

Hi There,

We have been offered the sale of the freehold by the landlord. Initially this sounds ideal, as we have been trying hard to get rid of the influence of the current freeholder as we feel they are not operating in the best interests of the leaseholders. However, after some research I am not sure whether the cost of such an exercise will give us much benefit.

The freeholder has offered us the sale at 120,000 GBP + VAT + legal Fees + Any outstanding debt (e.g. non paid service charges).

The details of the building are:
- 30 flats
- Average price would probably be about 215,000 GBP (in the current market).
- Ground rent is 300 GBP per year.
- Average leasehold length would be 123 years.

If I plug these details into http://www.freeholdcalculator.com/calc.php I basically dont see any value in doing so at the price they are asking.

The questions that immediately come to mind are:
1. Is the asking price too much. Considering the length of term left on the leases, is there really that much value in the freehold?
2. Typically they say that owning a part of the freehold improves the value of the property, but in this case again with such a long lease does it really?
3. Is it right that we should also have to buy out the outstanding debt, I mean this is their inability to collect it from current lease holders not ours.

The main benefit we see in pursuing this is that we can appoint a managing agent or run it ourselves, meaning that a lot of our outstanding issues would be in our power to fix.

If we had 51% of agreement within the building, what costs would associated to invoking RTM? this potentially would achieve the same thing?

Regards

Dan

If the total rent is £300 X 30 units = £9,000 and the freeholder is offering it to you at £120k (I am not sure why the sale of a residential freehold would attract VAT - others will I am sure advise) it is below the enfranchisable price and even more so if the rent rises every 25 years.


An RTM’s biggest weakness is that in the event of being unable to recover service charge arrears it has to then liaises with the freeholder who is the only party that can threaten forfeiture which will often result in a mortgagee paying to protect their security. Many mortgagees will only pay when a Section 146 Notice is issued (i.e. 14 days after judgement obtained) . This as you will appreciate requires the co-operation of the freeholder.

It is often overlooked but an RTM is obliged to report regularly to the freeholder as to the status of any delinquent accounts.

[jeffrey]

Buying an income stream of £9000 p.a. for £120 000 is equivalent to > 13% gross interest (and even more if rents are increased).
That sounds like a very good investment, even though there are accompanying obligations too [but this must not be seen as investment advice!]

[DanielB]

Thanks all, was good to get pretty much consistent advice back. :o

[Gordon999]

danielB

1. Ask the freeholder for full details of the outstanding arrears.

2. The big problem you face is getting all the flats to support the purchase of the freehold and being able to cough up 4K each and to persuade the flats in arrears to pay up. But i think 4k is a sum , which each flat could raise ,by adding onto their existing mortgages .

3. Send a letter to all the leasehold flat owners asking for confirmation of their support and say collection of 300 pds ground rent will be stopped for those flats which agree to participate.