When leaseholders get fed up with their managing agents they understandably want to see real change. They want to see off their existing managing agents and bring in new management. A quick trawl of the internet later and the same frustrated leaseholders find they have two choices: Right To Manage or Freehold Purchase.

Both options allow leaseholders to forcibly take control from their landlord giving them the power to hire and fire the managing agents. But out of the two options collectively owning the freehold offers the greater, ultimate power. This article explains how and why.

The Advantages Of Freehold Purchase

Freehold purchase, collective enfrachisement,In short Right To Manage has many positives but it does not offer full and outright ownership to the applicant. Freehold purchase does. A flat with a share of freehold is more attractive to buyers and more attractive to lenders – and so on a like for like basis a flat with a share of freehold is valued higher than a leasehold flat.

The first thing to say is that freehold purchase is a legal right. If more than 50{ffa8de35d0b62b3ba7923bb56781bbec5f3e6ac91467088ae390fe344f22d0f8} of leaseholders express a wish to do it the landlord has to sell. He has no choice. The only negotiation is the price.

The Costs

The main cost is the expense of buying the freehold itself. This is called the premium. In order to get a sense of the cost of the premium you would need to get a valuation done by a RICS Registered Valuer. (For a free indicative estimate contact Your Home Property Management).

The more leaseholders that participate the better because greater participation means lesser individual contribution. Don’t forget  in most freehold purchases the contribution is proportionate to the value and/or size of the participant’s flat. So, less for a smaller flat, more for a bigger flat.

There are some legal costs on top of the premium: once you have succeeded bought the freehold from your (previous) landlord you have to reimburse the landlord for his reasonable costs i.e. any legal advice he sought during the process, the costs of him supplying you with relevant information and so on.

But remember for your premium and some usually modest legal expenses on top you would be rid of your landlord once and for all. You could arrange your own insurance. And because you own the freehold you could organise a new lease with:

  • 999 years and zero ground rent.

freehold purchase, block of leasehold flats EssexThe Rationale For Freehold Purchase

And bear in mind leases are diminishing day by day, week by week, year by year. At some point you will have to either extend your lease or buy the freehold. Lease extension costs pretty much the same as freehold purchase (but with lease extension you only get 90 years added to your lease term) and if you choose to just do a statutory extension, the premium goes to the current landlord.

Also be mindful that the cost of buying the freehold goes up the longer you delay it.

What If Not Everyone Wishes To Participate?

The law says that for you to buy the freehold more than 50{ffa8de35d0b62b3ba7923bb56781bbec5f3e6ac91467088ae390fe344f22d0f8} must express a wish to do so. If you cannot get over 50{ffa8de35d0b62b3ba7923bb56781bbec5f3e6ac91467088ae390fe344f22d0f8} then you cannot progress the freehold purchase. Obviously the more that participate the less each individual participant pays for the premium. A couple of scenarios:

What If I Choose Not To Participate?

If the residents in the block you live in decide to buy their freehold, or more accurately a share of the freehold management company, but you choose not to participate (which you are perfectly entitled to do) you will remain under the terms of the current lease and your new landlord will effectively be those residents who did participate. The participants will form a new company let’s say New Landlord Limited and that new company will be your landlord. The leaseholders who did participate will each become a shareholder in the new company.

You will pay your ground rent and insurance to your new landlord, New Landlord Limited, and the shareholders will be entitled to draw down that money as profit from New Landlord Limited and spend as they choose.

Also if you choose not to participate your lease will continue to waste away and as noted earlier inevitably you will have to either extend your lease by 90 years (a statutory extension) or pay a premium to become a shareholder of New Landlord Limited (assuming the existing shareholders approve your request).

In either case the premium you pay (which year by year is only going in one direction) will be paid directly to New Landlord Limited to be shared among the company shareholders as profits.

What Do I Need To Do Now?

If you are interested in buying your freehold, and learning how to set up a freehold company, the first thing to do is to start talking to your neighbours either directly or by setting up a web based forum like Google Groups. Do this to check if there other like minded residents.

If you want to discuss your particular circumstances contact us direct.