Buying freehold and variation off lease

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    Buying freehold and variation off lease

    Hi,

    I am a leaseholder in the upper flat in a block of 2. I approached the freeholder as I was considering doing a loft conversion and after exchanging a few emails, the freeholder suggested I might want to purchase the freehold with the other leaseholder. The other leaseholder is not interested so the freeholder will serve a section 5 notice for right of refusal. In order to do this, they have asked I pay for the valuation and their solicitor costs. I understand this as they seem to be keen to offload the freehold with minimal effort or cost to them. There are a few things that I am concerned about however:

    1. If I agree to pay for the valuation, is there anyway I can try to get them to guarantee that they would go ahead with the price quoted? Or do I just have to take the risk

    2. Again if I agree to pay costs then when they serve notice the other leaseholder suddenly does become interested I'd obviously be a bit out of pocket - would it be possible to ask the freeholder to add these costs to the offer price so that they would be equally shared if we do both partake? Or again is this just a risk I need to take.

    Many thanks in advance for any advice on this.

    #2
    Unfortunately if you proceed on your own outside of the right of first refusal there is some risk and a few months nail biting ahead. I have recently been through this.
    You will have to pay for the valuation and the FH reasonable legal costs(budget around £1500-2000) plus your own legal costs (budget around £1500).
    Once the section 5 notice is served you will have to wait 2 months until this expires before you can proceed, all the time worrying if the other LH changes their mind.

    Can you get a rough idea what the freehold is worth before paying for the valuation?

    The cheapest option is to buy with the other LH and split the costs, however you agree to do this, but this would mean you jointly own the FH and will need their co-operation and agreement to make the changes you want, depending what your leases say.

    If you haven't already check out the advice guides at- http://www.lease-advice.org/publications/ on enfranchisement and right of first refusal

    I think you just have to proceed knowing there is a risk, as in any property transaction that things go wrong along the way. Good luck though.

    Comment


      #3
      Why not negotiate with the other leaseholder and agree to buy the freehold in joint names, with you paying all costs, but having secured an option agreement to buy his 50% share for an agreed small sum of money as soon as completion of the transfer occurs.

      If that removes all those figures quoted by th elast poster as legal costs, that may be a sensible way forward.
      You just need to persuade the other leaseholder to sign one or two simple documents with the promise of a better exyended lease possibly?

      Comment


        #4
        Why not negotiate with the other leaseholder and agree to buy the freehold in joint names, with you paying all costs, but having secured an option agreement to buy his 50% share for an agreed small sum of money as soon as completion of the transfer occurs.

        If that removes all those figures quoted by the last poster as legal costs, that may be a sensible way forward.
        You just need to persuade the other leaseholder to sign one or two simple documents with the promise of a better extended lease possibly?

        Comment


          #5
          Agree to buy it together with a side contract to sell and you to buy out his share and £1 contribution to the purchase on completion.

          The freeholder in or outside the R2FR will always want you to pay his costs, sorry.
          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

          Comment


            #6
            First and foremost - what obligations does the current freeholder have, and what does he get for it?

            Otherwise you may find out later (when it has become your responsibility!) a very good reason for WHY the current freeholder wants to get rid of it...

            Comment


              #7
              Thanks for all your replies.

              The other leaseholder is really not interested in being involved just now - they have a long lease (~130 years) so no interest in extending and are currently renting out the property so unfortunately can't see any route other than R2FR.

              The current freeholder seems to have very limited obligations (arranging buildings insurance is the only thing that they have done in the last 4 years). If there is any work required on the property they look after the "project management" of this and charge a fee for the service (nothing has been done in the last 4 years). I believe the current freeholder inherited the freehold and as they get nothing from it at the moment (no ground rent/service charge) then selling it would be quite attractive to get some extra cash. Though I don't know if there is a way I can ascertain this for sure before proceeding?

              The freeholder has also just come back with the costs for the valuation and legal fees and they are actually more reasonable than I was expecting. They are being fairly reasonable to work with so far so I might consider asking if it would it be possible to ask them to add these costs to the offer price in the notice so that they would be equally shared if the other leaseholder does suddenly change his mind when he realizes that the freeholder is serious about selling to me. Is there anything legally wrong with doing this?

              I also plan to ask them to do the valuation first so I can check there are no huge surprises with the overall cost before proceeding.

              Comment


                #8
                Well you both exercise the right & he nominates you as purchaser and you agree that on request he gets a free( pays his own costs) 999 year lease at a peppercorn rent. If the leases charge ground rent that might entice him to agree if he dost pay you any rents in future.
                Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                Comment


                  #9
                  Buying freehold and variation off lease

                  Hi,

                  I'm in the process of purchasing the freehold for my building. I am one of 2 leaseholders and will be purchasing the full freehold for the building.

                  The main reason for the purchase is to do a loft conversion (and the freeholder is charging a premium for the development value) and as the airspace is not included in my lease I understand I will need to do a variation or supplemental lease to ensure this is demised to my lease.

                  Is it acceptable for me to purchase the freehold and then make these changes, or do they have to me made before I purchase the freehold?

                  Thanks

                  Comment


                    #10
                    Two related threads have been merged
                    I also post as Mars_Mug when not moderating

                    Comment


                      #11
                      Originally posted by s1234 View Post
                      Hi,

                      I'm in the process of purchasing the freehold for my building. I am one of 2 leaseholders and will be purchasing the full freehold for the building.

                      The main reason for the purchase is to do a loft conversion (and the freeholder is charging a premium for the development value) and as the airspace is not included in my lease I understand I will need to do a variation or supplemental lease to ensure this is demised to my lease.

                      Is it acceptable for me to purchase the freehold and then make these changes, or do they have to me made before I purchase the freehold?

                      Thanks
                      Well no As the freeholder its all your except what is subject to the lease on your flat and the other.

                      That as you will borrow on and sell the flat with the roof extension, its best to surrender and grant a new lease of the finished larger flat.

                      Just take care over obligations over the roof in case you as FH repair it and GFF pays towards that and your service charge % as with a larger flat, especially on insurance, should payer a larger proportion.
                      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                      Comment


                        #12
                        Thanks - the roof is already my responsibility as the leaseholder so I will not be worse off in that respect and we don't have any service charges or ground rent so I don't think there is anything to worry about there. I will need to consider the split of the insurance though in the longer term.

                        The solicitor I was planning to use has told me that the addition to the lease would need to be completed before the sale of the freehold as I cannot as freeholder grant an additional lease to myself. Is this correct? I believe I will incur additional legal fees from the existing freeholder this way so would like to push back if I can but obviously I don't have enough knowledge of the law to know where I stand.

                        Just an aside as this has been joined to my first posting (I have a better understanding of the fuller process now). The freeholder is charging me for the development potential as well as the standard freehold costs. The surveyors report looked accurate in the figures for the value and potential value of the flat. They then took this (£80K) took off the development costs (£50K) which gave £30k net and the report states that 50% would go to the freeholder. Is 50% fairly standard ? Not that I think I can argue it too much as they can really charge what they want.

                        Comment


                          #13
                          Well development value is part of the freehold value, but its separated to allow the 50\50 deal. They could ask for the full value, so its a good deal, unless dv less build costs are more than 50%. In formal enfranchisement the dv is part of marriage value and 50% is standard.

                          on the lease the solicitor is correct if unimaginative, as in these cases the Hmlr do accept them and a deed of variation, or as posted, build it and have a new lease ready to grant when you sell. If the freehold has a value for the rent or lease extension for the gff, the its best all round if your solicitor does draft the new lease for the old landlord to give to you at completion and put the freehold into a company of 2 shared so that its easy to sell to a future owner or gff owner who wants to join in.
                          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                          Comment


                            #14
                            After putting a rather convoluted suggestion to the current freeholder (splitting the purchase into 2 - first doing an addition to my lease then doing the sale of freehold), their solicitor has come back with 2 other suggestions which may be quicker (an have me thinking about finding another solicitor who is of more help to me!)

                            1. upon acquiring the freehold, surrender my existing lease so that existing leasehold title merges with the freehold title and I would own whole property ( nothing in either counterpart lease prevents this and this is how the fh expected to progress)
                            2. set up an off the shelf company and purchase the freehold in the name of "Newco" then as freehold held by Newco I can enter into a Deed of Variation in respect of existing lease with Newco

                            Are either of these sensible options?

                            Comment


                              #15
                              1 rather silly as eventually you will have to sell and this set up is relatively hard for a buyer to get a mortgage on. it tends to get labelled freehold flat which not all brokers lenders have the imagination to understand and adapt to. to most its one or the other.

                              2 Thats a good idea as you can add a second share which you hold and can be sold off to the other flat owner in the future. Just be careful of tax liability when doing these. often a good idea to have the current freeholder sell the extension to you as well as the freehold and let him pay the tax on the proceeds.

                              One twist is to ensure that your ground rent is healthy in the new lease. Of course you will never pay it, but it means that along with GR from the other flat the freehold is worth something which can come in handy.

                              One option is to sell in the future the flat and sell the company which owns the freehold to an investor and avoid legislative right to first refusal( if it applies).
                              Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                              Comment

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