lease ext with a share of the freehold

[JayJay]

Hello all
Hope somebody can help. I've exchanged contracts for my flat which has a 76year lease remaining. The freehold is owned by a company made up of the residents of the block each owning a share and is run by a management company. The owner of the flat I'm purchasing didn't buy a share of the freehold- after enquiries carried out by my solicitor about extending the lease the management company informed us that I would have to buy a share of the freehold and then extend the lease, i can't do one without the other. They have said the price of the freehold has been worked out by calculating the premium and have estimated it to be 5-8K price of the flat is 161K.
I want to know if when you buy a share in the management company and extend the lease do you still have to pay ground rent? Is this the loss that they take into account when calulating a premium? Ground rent is £50 for the first 30 years of the lease, £100 for the next 30 and then £150 years.
I also want to negotiate the price as from other property sales there's a not more than a 3k difference in the price with a long lease- can I do this myself or does a solicitor have to do this for me and would I be better off instructing a chartered conveyancer than a solicitor?

[Corinne Tuplin]

Dear Jay,

As the block has already purchased its freehold, you have no statutory right to buy your share. This is entirely dependent upon the co-operation of the freeholders.

Since they are willing to sell the share to you, however, this should not be a problem. Once you have your freehold share, you can extend the lease up to 999 years on a peppercorn rent (i.e. one pence a year). As a freeholder, this amount would be payable to yourself.

You can negotiate the price yourself or use a solicitor, as you wish. Pro-Leagle offers a freehold share valuation service which costs £60.00 (inc. VAT). This may help you in your negotiations with the freeholders.

I hope this assists.

Regards,

CORINNE TUPLIN
DIRECTOR
PRO-LEAGLE
www.proleagle.com

[JayJay]

Thanks for that.
The letter from the management co says that the lease ext will be 120 years. Will i still only pay peppercorn rate? Is this the same for all lease extensions or can they decide to still charge ground rent?

[tenant29]

Normally when you own a share of the freehold company, the ground rent is not demanded from the leaseholder. Have you obtained a copy of the accounts for the freehold company from Companies House ? The accounts will show how many flats own a share of the freehold etc ?

You have the legal right to apply for a 90 year extension after 2 years as a leaseholder. Get a copy of "Long Leaseholders " from the Leasehold Advisory Service or from Office of the Deputy Prime Minister.

If you think payment of marriage value ( applies to property under 80 years term) under the present "Leasehold" property system is unfair to the leaseholder , then join CARL.

http://www.carl.org.uk/pages/our%20aims.htm

[SteveP]

The owner of the flat I'm purchasing didn't buy a share of the freehold- after enquiries carried out by my solicitor about extending the lease the management company informed us that I would have to buy a share of the freehold and then extend the lease i can't do one without the other.
Well you can, but why would you not want a share of the freehold?

They have said the price of the freehold has been worked out by calculating the premium and have estimated it to be 5-8K price of the flat is 161K.
That sounds about right.

I want to know if when you buy a share in the management company and extend the lease do you still have to pay ground rent?
The Freeholder still has the right to demand ground rent. Some do, some don't in practice.

Is this the loss that they take into account when calulating a premium? Ground rent is £50 for the first 30 years of the lease, £100 for the next 30 and then £150 years.

Yes, plus the loss of the ability to sell a new lease at the term end and any marraige value if the the remaining term is less thasn 80 yeears.

I also want to negotiate the price as from other property sales there's a not more than a 3k difference in the price with a long lease- can I do this myself or does a solicitor have to do this for me and would I be better off instructing a chartered conveyancer than a solicitor?

There is nothing stopping you from negotiating. However you would be better to employ a chartered surveyor to value the freehold interest. there is no such thing as a chartered conveyancer, I presume you mean a licenced conveyancer. Both a licenced conveyancer and a solicitor are able to deal with the conveyance.

Corinne said
Once you have your freehold share, you can extend the lease up to 999 years on a peppercorn rent (i.e. one pence a year).

But I would say that whilst tenant owned freehold companies do often decide to do such things they are in no way bound to. Aquiring a share of the freehold company does not alter your position as a leaseholder or the terms of your lease one bit, anymore than owning shares in British Gas changes your liability to pay your gas bills. What it does is put you in a position where you can influence decisions about charges, maintenance and the like.

[JulesC]

I would really appreciate any help anyone can give as I am confused!

We are a block of 6 flats that also manage our flats through our own limited management company. A couple of years ago, the 6 owners and therefore shareholders of the MGT company purchased the freehold and we are now looking to extend all of the leases within it.
At our recent AGM we touched on the point raised by Corinne and Steve P around:

Quote:
Once you have your freehold share, you can extend the lease up to 999 years on a peppercorn rent (i.e. one pence a year).

Our concern was that whilst we are shareholders in the company that owns the freeholder, as the owner of the freehold, the 'company' has to be (or be seen to be) getting a fair market value for the extension - even though income coming in could then be transferred back as a dividend?
If we could simply go down the extension to 999 years on a peppercorn rent then that sounds like the easiest and cheapest route plus would do away with valuations etc so I am wondering if it can be that straightforward (appreciating it would still need solicitors etc)?

[Poppy]

(Please start your own thread next time. You are facing a different scenario to the original poster.)

If all of the leases in the block are extended at the same time to become the same length all by mutual consent then I do not see a need to place a value on the extended lease lengths.

[tenant29]

Jules,

Once you have paid for your share of the freehold company, the collection of ground rent should be terminated as it does not make sense for the freehold company to pay tax on your ground rent money and return it to you as dividend ( minus tax ) .

If all the leaseholders owns a share of the freehold company, the company becomes non-profit making ( or dormant ) and the accounts sent to Companies House are audit exempt. However under the Landlord & Tenant Act 1985 and blocks having more than 4 flats , you are still required to produce audited accounts to each leaseholder.

[JulesC]

Thank you Poppy & Tenant29, appreciate the information.