Monetising a freehold

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    Monetising a freehold

    Myself and a fellow flat owner (in a unit of 3) have recently acquired a freehold at not-inconsiderable expense. The main reason we did so was to get an unscruplous freeholder off our backs, and avoid the ridiculous charges that they were constantly coming up with. The third flat didn't buy in, as they are moving out soon - their potential buyers are seeking our -pre-approval for proposed extensive building works, and shown little interest in buying a share of the freehold. I wanted to know how exactly we might be able to make our asset work for us in the short-term. Would this be an opportunity to levy a charge for our approval, and is there a system in place for such a thing? How else might we reasonably incentivise the incoming buyers to buy into the freehold? I'd appreciate any feedback, as I have very little real-world experience of how to manage the freehold thus far.

    #2
    Unless the lease explicitly provides for fees for approval, you can only charge the reasonable costs, e.g. the cost of employing a surveyor to validate the safety of the work, and to check that it is being implemented as specified, and any costs arising from the need to vary other leases..

    I suppose, as it is pre-approval, the lease doesn't apply at that stage, so it is possible that you have carte blanche, but do you really want to use the same tactics as the previous freeholder, when you bought out the freehold because of their monetisation tactics.

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      #3
      Thanks for your reply. Quite! We don't want to carry on that putrid legacy! I certainly wouldn't want to engage in any underhand tactics, but wanted to understand further what would be the usual process in a situation such as this. I expect we'll end up greenlighting the proposals without any obstacles.

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        #4
        Is any extension on communal land though? You could certainly charge for that.

        Also, in due course, you should have some lease extension value from the non-participant.

        Comment


          #5
          1) You don't want to offer any "potential" buyers a share in the freehold.
          As that means they have a voice and a Vote on how the place is run ! ! when they know nothing about the place, and probably know nothing about leasehold law.
          Don't offer any share of the freehold to anyone, unless they ask.
          If they ask you can refuse.
          If you grant a share of the freehold, they should pay the same as the two of you each paid.
          If the freehold was £10,000, you each paid £5000, so why should anyone else pay less than you paid ?
          There are 3 flats. The price for example was Flat-1, paid £5000, Flat-2 paid £5000, so the remaining 3rd flat should pay £5000.
          ( make your asset work for you in the short-term.)
          If you divide the freehold cost by 3, ( assuming £ 1000 ) you get £ 3333, but why would you only charge £ 3333 when you paid £ 5000 ?

          If you only want to charge £ 3333, then that flat owner never becomes a member of the freehold, and never becomes a Director of the Freehold company you have just formed ( A must do option )

          2) Never, Ever, give pre-approval to someone who does not own a lease.
          Once they own the lease, then they can ask.
          Once in, they must show you the quotes, and if any structural wall will be modified.
          You must see plans of the alterations, and maybe your own surveyors report ( if extensive modifications ) .
          Your costs for such are chargeable to the leaseholder wanting the alterations.
          If rooms have been increase in size, etc, a new floor plan must be professionally drawn, and by the freeholder, and charged to the leaseholder.

          pre-approval can be dangerous and Legally dangerous

          a) Because you will not be informed of the true extent of the alterations, no quotes, no sight of the insurance liability of the builders, no idea of the disruption the works will occur.

          b) Legally dangerous
          A Court has decreed that if you give pre-approval, or even say "I see no reason not to approve" then you HAVE given authorisation to proceed, even if things go pear shaped and you have to reject their plans and remove the authorisation, the courts wont let you.

          You need to see written itemised, and a plan and schedule of works, and that means you can say NO, we cannot give pre approval for legal reasons prior to purchase, and your costs are not covered prior to purchase, as well.

          Once they own the flat, THEN you can discuss the alterations, showing all your costs, but always say, we will look at your request and give you an answer in due course.

          Never pre-approve to someone who does not even own the flat.

          Comment


            #6
            Thanks for your feedback, everyone.

            The way I see it, I paid a lot for the freehold, and want to offload 1/3 of the asset at the soonest opportunity. We are charging something of a premium for the share, but not expecting the same price that each of us paid in the first place.

            The potential buyers do want to buy into the freehold, most likely, and won't move in without pre-approval of their building works. It would only be a case of stating in writing that upon completion, we would have no reasonable objection to their plans. Your feedback makes me think that I might need to insist on my own survey (at their cost) before approval can be signed off.

            Food for thought anyway, I appreciate your thoughts on the subject.

            Comment


              #7
              Originally posted by landlorde View Post
              won't move in without pre-approval of their building works. It would only be a case of stating in writing that upon completion, we would have no reasonable objection to their plans.
              NO, you cannot and must not give approval prior to the flat being transferred to another ownership.

              You HAVE to investigate their building works, via plans, surveyors if required, and in depth investigation. Even then, you can reject their alterations if it may be detrimental to the structure, environment, classic lines of the building etc. etc. etc.
              Also in writing that they will not cause damage to any of the property, grounds, electrics etc, and if they do, they alone are responsible for the costs of rectification.
              You have to draw up a legal documents to above effect. -- and it all costs money.

              That's why only leaseholders can ask, as then you say, the freeholders costs are approx £ x, payable in advance, or we can't investigate your proposals.
              Freeholders have no money in small blocks of flats, and you can't investigate without funds for people who just may pull out in the middle of your investigation for you to waste time and money to approve or not.

              What if you had 3 buyers ALL wanting to alter the place ?
              ~The freeholder cannot afford to go through 3 investigations, and the seller wont want surveyors running round his flat for proposed alterations.

              Looks like this potential buyer just wants to alter, and sell on for a profit.
              I've been there before, and it's soul destroying.--


              Comment


                #8
                As indicated, there is no obligation to deal with a prospective purchaser. It should though be noted that the relevant legislation does not say that, but I think it has to be implicit. However, the way the legislation is drafted, if you do deal with a prospective purchaser I think it has to be in accordance with the legislation. In any event, it is easy enough to get round because the application can be made by the existing tenant.

                A landlord cannot, because the legislation says so, charge a fee for considering an application even if the lease say he can.

                Ram rather overstates the case. It is not so much when you give consent, but rather how you respond to an application for consent. As Ram says if you say: "I consent on the following terms and subject to a formal licence" you have done enough to give consent. You do not therefore agree anything until you have all the information you need and are happy to grant the consent and when you do indicate consent you must set out all your conditions. It does not really matter whether you do this before or after a prospective buyer is committed.

                You must though proceed with extreme caution if the work proposed includes an extension. That is because either (a) the lease will need amending to exclude the extension from the landlord's repaing obligations, or (b) all the leases need amending to alter the service charge proportions.

                As to employing a surveyor, when it comes to flats, you need first to ask if the proposals warrant supervision by a professional and then, if they do, to avoid getting the same work done twice. If the tenant is employing a professional you ask that that he (the professional) provides a collateral warranty. You can also ask for the contractor to give a collateral warranty. It all comes down to making sure that the professional expenses and requirements are proportionate to the cost of the work proposed.

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