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Leaseholders buying out the freehold

All leaseholders of a house with three flats agree that they would like to buy out the freeholder and know that they need to get a proper marlet valuation and use a solicitor etc.

But before they start that process they would like some idea of what the market value might be.

Is there a back of an envelope calculation that would provide an approximate figure?

One of the flats is about twice as big as each of the others. Is there an established way of sharing the cost between the three leasholders in such circumstances?


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20th Feb 2012 09:16

Discount annual payments?

Probably 10 or 20 times annual payments plus negotiable amount for getting rid of freeholder.


Why not split pro rata lease payments?

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20th Feb 2012 11:53

Take a deep breath before you jump !

The "market" value is not relevant; there is a statutory value.  The valuation method is laid down in the relevant legislation.  This is to prevent leaseholders being fleeced by unscrupulous freeholders.

You should get a practising chartered surveyor to give you a valuation, he/she will have the qualification/experience to do the calculation.  He/she will need to view the properties (as there may be physical problems such as 'hanging freeholds') and also see copies of the leases to determine the remaining period of each lease, the ground rent payable, etc.  He/she can also advise you on the split of costs between leaseholders.  Ask him/her for a fee quote in advance.  You need a property professional in such matters.

You will also need a solicitor to act for you.  They need to have experience in this type of work as it is not routine conveyancing.  The legislation lays down that certain notices must be served on the other party and time limits observed.  You also need professional legal advice on how to hold the freehold, a holding company is often the most convenient route when there are several unconnected owners; you don't want a neighbour's divorce or death to impact on the ownership of your own flat.   Again ask for a fee quote before you engage a solicitor.

Where the leaseholders approach the freeholder to buy the freehold, the freeholder has a statutory right to have his/her costs paid by you the purchaser(s).

You will probably pay more in legal and professional fees than the cost of the freehold; there is far more involved than just buying a freehold/leasehold house/flat.  If there are no complications it can take at least a year or so to complete the transaction.  As a property solicitor friend said to me  GOOD LUCK.

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20th Feb 2012 12:41

Don't complicate things

Both remarks so far are true but before you get involved with surveyors and solicitors a little research wouldn't hurt.

Chat to LEASE or CARLA for example and get a little free advice.

Consider why you want to buy the Freehold. Is it because of the management and costs? Some Freeholders will be only to happy for you to self manage and will allow you to do that with a simple low cost deed. This may be your cheapest option rather than you needing to go down the more expensive RTM route.

If its not management you want and you really do want to buy the Freehold you will need a vehicle (best to use a limited company) to own the freehold incurring not only initial costs but on going compliance costs preparing Statutory Accounts, dealing with HMRC, etc and these costs are probably not recoverable under the lease. Of course you will need to involve a solicitor and possibly a surveyor.

Before you incur any costs why not contact the Freeholder and ask what they want for the Freehold. Many things will affect the value but Ground Rent and length of lease (shorter = more expensive) are the 2 most significant. You may be pleasantly surprised. I'd expect a request for between 10X and 20X Ground Rent and even at the top level if the Ground Rent is only £100 thats a premium of only £2000 and it may be cheaper to agree this than engage a surveyor.

Armed with a little information you may be in a better position to make a sensible decision but beware, self management / ownership is not easy and costs can have a habit of running away with you. I know of at least 1 instance where £35K+ costs were incurred acquiring a Freehold for £2K and other instances where after acquiring a Freehold the lessees have disagreed, cut costs and had their property fall into disrepair. Furthermore arguments of costs and funding of the Freehold company may result in the company becoming insolvent and falling into Administration resulting in you ending up losing all your money and having a new Freeholder.


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