Why would a freeholder be reluctant to sell to leaseholders?

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    Why would a freeholder be reluctant to sell to leaseholders?

    Hi everyone - complete newbie here. I found this interesting forum when Googling issues from the point of view of a long leaseholder.

    My situation is that I own a studio flat in London on a long lease, with my son in occupation. The freeholder is a property company that actually used to operate from the building, but then moved out and converted its offices into ground floor studio flats. The floors above it are also residential flats and the adjoining building is similar, but with a long leasehold office on the ground floor. There is a top floor flat going across both properties, which ties the freeholds together for practical purposes. So there are two freeholds and about a dozen leaseholders.

    Relations between the freeholder and leaseholders are not good - the usual tales of poor maintenance, service charges for minimal services, management fees comprising 33% of the total service charge, etc. You get the picture. Some leaseholders are in arrears/in dispute because of roof leaks that have not been remedied.

    Anyway, a couple of years ago, we got notified that the freeholds were to be auctioned. They did not sell - reserve presumably not met. This has now happened several times. The last time, the leaseholders got their act together, formed a limited company, and prepared to exercise our preemption rights under s6.3 of the LTA 1987. Sadly, we messed up and failed to submit a notice on behalf of the company as well as one on behalf of the tenants. Then we heard the freeholds had been sold, so we had missed out. But, a few weeks later, we hear that the buyer has failed to complete, so yet another auction is planned.

    I have two questions really.

    1. The fall of the hammer at auction is as binding as an exchange of contracts, as I understand. So how has the buyer failed to complete? I suppose lack of funds is one possibility, but are they able to get out eg because the level of service charge arrears has only just come to light?

    2. More importantly, as the freeholder knows the leaseholders have step in rights if they match the hammer price, why would the freeholder persist in going to auction repeatedly, and refuse to negotiate a price with the leaseholders in line with the most recent hammer price? is there any reason beyond a simple breakdown of relations?

    Thanks for reading - if you have!

    #2
    1. Could be any number of reasons, bid in error, read legal pack after, c 19, shill bidder etc etc

    2. Difficult question , in my opinion where lessees have reserved their rights it naturally reduces the hammer price as buyers know they are going to lose some costs. In fact I would never bid in such circumstances.
    I have served 5b notice in the past as an invitation to negotiate with lessees, so maybe try direct approach again ??

    Comment


      #3
      Freeholders actually MAKE money out of service charge arrears.......

      They engage an expensive lawyer to challenge the lessees, and get handsome backhanders. The only losers are the lessees.

      Comment


        #4
        Section20z,

        Thanks - the auction conditions made it clear that the buyer would have pay the hammer price AND make good any arrears to the seller, without full evidence being required from the seller. Is that normal? It seems like a big loophole.

        Comment


          #5
          AndrewDod,

          Yep. For that reason I tend to pay up while querying the figures for the record.

          Comment


            #6
            You should contact LEASE ( www.lease-advice.org ) and ask their legal advisor and get advice if you can take the freehold title at last sold price.

            Comment


              #7
              Why not just exercise your statutory rights to enfranchise the freehold collectively?

              You need 50% plus of leaseholders to get involved/sign-up and an enfranchisement specialist valuer to do the haggling.

              Or just set up a management company and takeover the management using the 'Right to Manage' legislation.

              (Could be worth doing RTM first anyway as some freeholders are reluctant to hand over cash after the freehold has been enfranchised)

              See the lease.org website.

              Comment

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