From freehold to leasehold

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    From freehold to leasehold

    Hi, we are selling our flat which is currently freehold - there is one other flat which is leasehold, we own the freehold.
    we are creating a new lease for our flat and selling it leasehold this retaining the freehold.
    The buyer have said they would be interested in purchasing the freehold or a share. The flat that has the leasehold only has 64 years left on the lease. However, the buyers of our flat want a time clause put in the new lease, meaning there is a time limit in which we have to offer the freehold.
    I don't think the flat with the lease will want to extend or purchase the freehold so we would sell the entire freehold to the new buyers. Does this sound correct?

    It does not appear the best way forward for your situation.

    Flats in E & W are usually sold under "leasehold title" because the UK mortgage lenders will not offer loans on flats with no maintenance agreement. So to get the highest price, you should sell your own flat under " leasehold title" or you are limited to finding a cash buyer and you will be losing out on the sale price. Consult a few leading estate agents in your town and compare the price difference between selling flat under leasehold title and selling under freehold title.

    Also majority of lenders do not offer mortgage loan if the lease is below 70 years. So the other flat will have to seek a statutory 90 years leasehold extension to 154 years at peppercorn (Nil ) ground rent in order to sell their flat; and maybe have to pay 10% of market value and probably incur 2 lots of surveyor fees and legal expenses. So make a voluntary offer on statutory lease extension to the other flat at say 10% ( and no surveyor fees and no legal expenses to pay by the leaseholder )


      > However, the buyers of our flat want a time clause put in the new lease, meaning there is a time limit in which we have to offer the freehold.

      You don't have to agree to their terms. What if house prices crash and you may end up selling the Freehold for peanuts? Why loose control on when you sell?. YOu need to tell your buyer, if the Freehold (without flat) is sold, they will have an option to buy it (as per law). There are varies ways of disposing it e.g. auction, direct offer. The leaseholder have to be notified and they must have a chance to buy it.

      The Leaseholders (jointly) could also serve a notice to buy the Freehold from you. ​​​​​​However, the flat with the 64 years, cannot do that to you. As you need a certain percentage to exercise that right (I think more then 50% - I forget). ​

      You can sell the Freehold "as-is" that is Freehold flat. It may have implication with the buyer's mortgage company, as stated in #2. It depends on their lender. However, you should ask for a hefty premium for it. As Freehold will begin to get more and more valuable, due to the flat with the lease with 64 years left. It has to get to less then 60 years (but you have to take into account the economy).

      I suggest you keep a low profile, until the lease is below 60 years. Don't make an offer for them to extend the lease, wait until you they get below 60 years. Even then you don't have to offer voluntarily offer a lease extension.

      Who owns the flat with 64 years left? Do they have funds? Are they elderly?


        60 years has no relevance here, once it's below 80 the lessee has to pay marriage value to extend, so the freehold already has some value and the OPs flat should be sold with new lease as advised by your solicitor. Best include a rising ground rent and 99 year lease to add to your retained value.
        I can't see it makes any difference to mortgagability because there is already a maintenance agreement (presumably) in the lease for the other flat and if you want to sell the freehold to your buyer then that is your option but you would likely be losing out.
        Not sure where you would find comparative values for "freehold flats" in this country as I have only ever seen one in forty years - and that was well dodgy !


          You could your buyer freehold but take an overriding lease over the short flat. In that way when the lessee of the short flat wants to extend , you will be the person who receives the funds

          You can always sell the overriding lease at any time, if you wanted to raise cash



            As you correctly said, we are creating a new lease on our flat (flat A) so the new purchasers of the flat will have a 125 new year lease. The other flat (flat B) has 64 years left on the lease and our intention was to sell the freehold of the building in a year or two. legally we have to offer the freehold to both parties. I am sure the short lease (flat B) will not have the funds to extend the lease. so does that mean we can offer the entire freehold to the new buyers (Flat A)? What did you mean by losing out?


              Yes strikes me as best plan, or 99 year lease if you can get away with and with a rising ground rent, say £250.
              If you sell later you will need to offer it to both and if they don't jointly accept then you can sell to whoever you like (including flat A or B).
              Your freehold has substantial value in it's own right so don't lose out by letting flat buyer have it on the cheap!


                The plan is to sell at some stage. I know flat A are interested in the freehold but I don't think flat B are interested in either buying or extending their lease.

                So for example, if flat B is not interested and Flat A wishes to buy the entire freehold, bearing in mind that flat B has under 65 years left, could I sell for anything in the region of £25000? This would be based on £300000 with a standard lease extension on flat B and £500000 on our flat A based on 125 year lease.

                Hope this makes sense


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