Buying freehold from evil freeholder

[ArsMamatoria]

I and the flat above have had a notice giving us first refusal on sale of the freehold. We would like to take up this offer (no price given on notice).

I have spoken to a couple of conveyancing solicitors who have both said different things about the way to do this.

The first reckoned both flats should set up a company to deal with the freehold (something about leases and no one wanting to buy a flat with ownership of freehold ). He said the price would be the price achieved at auction, only sold to us and not the highest bidder.

The second said that in a building with only two flats, we should buy it in trust (I think those were the terms used), but should then extend the lease because of the capital gains tax implications. She said that a price should have been included on the section 5 notice (it wasn't).

Arrgghh! This is a completely different language to me.

Added to that, OH had to take the evil freeholders to the leasehold valuation tribunal, so I'm afraid they're going to try to screw me over by pushing the price up if it does take the route that the first solicitor said. I haven't let on to the freeholders or their useless managing company that OH died, because I think they'll try to take advantage .

Any advice on the process and how much it's likely to cost in legal fees would be soooo gratefully received.

[WestVirginia]

Have you got a mortgage on the property? If so, ask the mortgage company for their advice.

[ArsMamatoria]

Thanks WestVirginia. Given past dealings with mortgage company, I'm not sure they'd be much good! But I will give them a try.

[WestVirginia]

Forty years ago we wanted to buy a freehold flat. We applied for a mortgage only to be told the building society would not lend on a Freehold flat. It is not a simple issue.

[sparks]

I have done this. Our freeholder wasn't evil though, just clueless

There is a set procedure that both sides must follow and formula set down in law for determining the value of the freehold. What the first solicitor said about the auction price is just wrong - do not use that solicitor.

It would be a good idea to extend the leases, but that is a separate issue from the purchase of the freehold. If I were you I wouldn't worry about that for the moment.

You might want to go to the Leasehold Advisory Service web site. Lots of good advice there. Look for the advice guide about 'collective enfranchisement' which is the technical name for what you want to do.

[WestVirginia]

Beware that the advice about buying Freeholds actually applies to flats.

Please do not fall into a trap.

[sparks]

The current legislation about the right of leaseholders to buy their freeholds was enacted in 1993. Whatever did or didn't happen forty years ago doesn't really have any bearing on the OP's questions.

[WestVirginia]

actually it does.

You need to read and comprehend the questions and answers before going off at half cock, as they say.

[StiffyByng]

Sparks is quite right and I speak as someone just about to complete on their SECOND freehold (for which, read idiot). The procedure is very defined and a decent solicitor and surveyor - get whichever you find first to recommend the other as it's much better to have a pair who are used to each other-will hold your hand throughout.

An idea of fees-my first purchase was very straightforward, and this with evil freeholders. The fees weren't huge at all-I think between three of us we paid around £2k each, or less. It's several years ago now but I don't remember them being too awful.

Second purchase was with evil and persistent freeholders. Fees so far between two of us are around £9k in total with a bit more to come. But this is going almost all the way to an LVT.

Don't worry in the slightest about mortgaging a freehold flat. There is no issue at all now. The new legislation completely changed things. Estate agents will tell you that freehold flats are easier to market.

If you're in London I highly recommend my solicitor/surveyor combination-names supplied on request!

And I'd recommend a trust over a limited company. Cheaper to set up and none of the Companies House tedium.

[ArsMamatoria]

Thanks for all input. I have had a look at the Leashold Advisory Service's website (thanks Sparks) and found it very helpful and that it made the whole process seem less frightening. One thing though - the LAS says that in a section 5B notice (which mine is, as the landlord intends to dispose of the fh interest by auction), the price is determined by the highest bidder at auction - we have to be informed of this within 7 days of the auction and then we have to sign the contract within 28 days of receiving notice of the price. Maybe others had a section 5A notice?

WestVirginia thanks too - your advice has made me slow down a bit and try to get a head start by reading around the subject.

StiffyByng (great name btw - my sister's nickname!) thanks for your post. Good to know that the prices I have been quoted aren't wildly off the mark. We went to the LVT over service charges, which is why I'm worried about the auction lest the freeholder put in a stooge to drive the price up. Very sorry to hear that your current purchase is not going well. Would it be too nosy to ask what the problem is? (absolutely understand if you can't/don't want to talk about it)
Thanks for the trust v. company advice, too.

[WestVirginia]

Google "Why Lenders do not wish to lend on Freehold Flats"

[ArsMamatoria]

Once again, thanks for all input - your different replies are making me research aspects I would not have thought to look at.

WestVirginia, I did Google as suggested, but found the following comments from different sites put my mind at ease a bit re. freehold flats. If I'm right, I think we'd have 'share of freehold' and not ownership of a Freehold flat, which appears to be a different thing legally. The first solicitor was definitely referring to 'share of Freehold' during our telephone conversation.

Anyway:

"Freehold flats are not to be confused with owning a share of the freehold. Some leaseholders have a leasehold interest in their flat but also own a share of the freehold of the whole building. This is different to owning a freehold flat."

"The freehold should be owned by a company which consists of the two current owners of the flats. When you purchase the flat, you will own a 50% share of the company that owns the freehold. The head lease (I think it?s called) is granted by that company to the two flats for a term of 999 years."

"Some flats are sold with a share of the freehold for the building. There is still a lease for each flat but the residents grant the lease as a group and act as landlord. If you're buying a flat with a share of the freehold your solicitor still needs to review a copy of the lease but there may be room for negotiation with the other freeholders.

There are a number of advantages to owning a share of the freehold. Freeholders can grant longer leases without having to pay a premium, they can get together and change any terms of the lease that cause problems, and they can decide between themselves on a fair service charge.

However owning a share of the freehold can pose problems. Unless you employ a managing agent looking after the property could be time-consuming. And if your neighbours are uncooperative you may never be able to agree on what work needs doing."

On other forums I've seen they echo your advce StiffyByng about setting up a trust rather than a company. My issue now is whether with a trust, the residents still 'grant the lease as a group and act as Landlord' as it appears they do if they set up a company. I would imagine so, but best to make sure.

[StiffyByng]

Yes, the trust is identical really other than setting up a company. My solicitor recommends it every time. We grant our own leases and act as landlord.

Nothing particularly unusual in our issues. We just have a git of a freeholder who employs a deeply dodgy surveyor (notorious in LVTs in London apparently) and together they demand outrageous amounts for freeholds. They force you to go to LVT and incur all the costs of that, often offering a lower amount literally the day before the hearing to avoid racking up any costs for themselves.

In our case, they counter-offered £18K more than our initial offer, refused to negotiate at all until we put in for an LVT (they should immediately negotiate as a first step), then put forward stupid offers. At one point we'd decided to accept £9K more than our first offer, but they then put it up again, so we told them to get lost and went for the LVT. We offered them a final settling sum of £5K over the initial offer - when they asked what we would settle for - and they refused that. However, once our solicitor and surveyor put forward their final paperwork, which was based on proper maths, they folded and we're paying £3.5K more than initial offer, although with probably £3K more costs.

Sorry - very long, but not that untypical of this sort of thing if the freeholders aren't great, and a LOT of them seem to be like this!

If the freehold is being auctioned, you are in a different position but if you have the right to enfranchise, you could always consider buying it from whomever buys it - you'd also have the advantage of having a good idea before starting the process of what it might cost.

[WestVirginia]

Find out the date and place of the auction, and go along and place a bid of your own.

[ArsMamatoria]

StiffyByng, they sound like complete crooks. There should be a law making people who deliberately fanny about pay the extra costs.

I'm kicking myself that we didn't buy the freehold when the first freeholder offered it to us. We just didn't have the money at the time and didn't think it would make much difference (we'd paid ground rent and insurance, but were otherwise left alone). Of course people who buy freeholds at auctions will be evil - why would you do it unless it was to make money?! Gaahhh. Never mind. We'll see.

WestVirginia - I've been advised by a few people to steer well clear of the auction in order not to drive up the price.

If they do plant someone there to drive up the price, we'll just have to take it from there, refuse if necessary and then go through the enfranchisement process. I'm hoping it won't be driven up too far as there are only two flats in the building and a tiny, tiny common area of hallway. Who'd want to pay thousands for that, especially when we have an LVT decision in our favour over service charges.

[StiffyByng]

Aw, good luck. The cost of the freehold will depend on the length of the outstanding leases - if they're over 75 years (or maybe 80 - memory fades), the cost is dramatically less - and the value of the freehold. My second was far more expensive than the second because the leases were much lower than for the first, and the house worth more.

Don't worry too much about the evilness. My first lot were viler than the second but failed to be as efficient in screwing us over the enfranchisement. Second lot are well known operators in the freehold world - the first lot were just thugs. So evilness doesn't necessary translate into vast costs!

A good reason to get a very experienced solicitor and surveyor is that they will know the local names and what's likely to happen, so they could tell you in advance if you're likely to get into a difficult situation. We went in with our eyes open and our cheque books braced. Our leases were too low to sell, and a lease extension would have still required us to go through a similar process so we bit the bullet.

[WestVirginia]

Stiffy, there is a big difference between Flats and Houses.

[cestlavielife]

it is 80 years that is the key number of years.
www.findaproperty.com/displaystory.aspx?edid=00&salerent=0&storyid=10207
"where the lease has less than 80 years to go, there is what's known as a 'marriage value', which is arrived at by deducting the value of the property before the extension from the value afterwards, plus the value of the landlord's interest.

Leasehold Advisory Service, the information service for leaseholders, gives an example of a flat with a 68-year unexpired lease, on a ground rent of £50 pa, with a current value of £150k, and an improved value of £165k. An extension of 90 years is likely to cost £8,250.



But the same property, on a lease with only 35 years to run, could set you back a whopping £55,368.

However, if the current lease is 95 years (and therefore attracts no 'marriage value') the cost of an extension would be only around £734."


but add in solicitor fees to that ... good solciitor will give you upfront idea of total fees.

[StiffyByng]

WV - see ArsMamatoria's response to your posts. Freehold of a house is fine. Flats of which you buy the share of freehold, under legislation which post-dates 40 years ago, are fine. This is what she is looking to do.

Freehold flats, which you are talking about, are very rare and an entirely different matter. Problems with them are irrelevant to her situation. She explains that in her own reply to you.