Leaseholders email

[thecrazy1]

I own the freehold of a Victorian building consisting of two flats. I own one flat but have the freehold for both.

I am now selling my flat with a share of the freehold, which was valued at £6000 with a 125 year lease.

The other flat has a lease of 62 and half years left and the valuation for the freehold was £35,000 this was from a surveyor and not something I have just plucked out of thin air.

Although I have tried to do as much research on leases, I am no expert. I told the leaseholder the value of the lease and she basically send me an email saying how outrageous it was and that it was above market value.
We have always been on friendly terms and this has really thrown me. She then starting saying her property is riddled with damp and that it's my fault.

Am I wrong to give her the valuation price? I understand that it is a valuation and like anything it is dependent on what someone is willing to pay.

What are my options now she has said she is not interested?

[sgclacy]

Two options:-

1) Sell your flat and retain the freehold. You would have to still manage it of course

2) Sell you flat and the freehold but take an overriding lease of the short flat - this will mean you will continue to receive the ground rent from the short lease flat, and when the lessee of the short lease flat wants a lease ext they will have to deal with you. If later on you want to raise money you can always sell the overriding lease. This removes you from having to manage the freehold after you have sold the flat.

[thecrazy1]

The buyers of my flat will only purchase if sold with a share of the freehold. I have not heard of the second option, but will certainly look into it.

[Section20z]

If the buyer wants a share of the freehold it will have to be a very small share to reflect the difference in value of the lease lengths.

[sgclacy]

The buyers of my flat will only purchase if sold with a share of the freehold. I have not heard of the second option, but will certainly look into it.

If you become tenants in common with perhaps you having 85% of the freehold and the other lessee 15% then when a large capital receipt comes from the shot lease in the future you will of course get. 85 % of that premium - however you will need the cooperation of your fellow freeholder and if they were to turn awkward it could become stressful and costly - I would suggest you do create an overriding lease over the short lease and then you can invite your purchaser to be a joint freeholder with you giving them the share of the freehold they are seeking but avoiding any problems in the future when the substantial capital sum comes in from the lease ext - you also have complete flexibility in the future if you want to sell off that overriding lease - private message me if you are unclear as to what I am suggesting

[thecrazy1]

Myself and my ulcer thanks you very much😉

I didn't realise that you could sell a share of the freehold at different percentages. I just assumed it would have to be 50/50.
I thought I had done my research into this, but nowhere does it mention a different split and an overriding lease.

[Macromia]

Two options:-

There is a third option, but that depends on how much the person buying your leasehold is willing to pay...

3. You sell the whole freehold to the person buying your flat (after making sure they first understand the value, and offering it to the owner of the other lease in line with first refusal requirements).


There's also no reason why you can't sell your buyer a 50% share of the freehold (which is likely to be what they want). You just need to price that 50% share appropriately because they will then get 50% of the premium when the other leaseholder extends their lease, as well as 50% of the ground rent from both properties.

[Anna1985]

I would recommend to discuss with buyers the sale of the whole freehold which would take into account the premium. Just easier.

Macromia - residential freeholder is not subject of section 5 and does not have to give notice.

Author - there are different options available but as you are not aware of your rights and responsibilities the best option to sell the flat and freehold.

I would think 31k (25 +6) would be a good deal for the buyer and for you

[sgclacy]

If the short lease with 62 years has a lease ext cost of £35k it would suggest that the flat is worth around £325k. Assuming the OP flat is worth around that, I doubt that a purchaser would want to spend an extra £30k to £35k buying into an esoteric investment. (that £30k to £35k as the proportion of the purchasers deposit would be probably very significant)

For the OP to get the best price for her investment whilst trying to strike a deal with her purchaser does require, in this case, that they look at the sort of proposals I am suggesting

The outburst from the lessee with the short flat would indicate that the lease term matters much to that lessee, and it may be that when that lessee researches the subject that she may come back to the table looking to do a deal. Exposing faults in her property would suggest that it is an attempt to argue that the flat is worth less to help lower the premium. This is flawed as the property has to be valued on the basis that it is in good order and may indicate she will want to extend her lease. If this analysis is right then it would be in the interest of the OP to hold onto the investment in the short lease

[thecrazy1]

Thanks for the input.

I personally would put a value on the property of around £280k - £300k based on the condition but the valuation was done without seeing the property.

My flat is £490k as it is a 2 bed maisonette. However, the purchasers are maxed out and would not consider purchasing the freehold.

I don't think I can make an overriding lease to myself but can transfer it and then make an overriding lease. Hopefully, I can now bring this to the attention of my solicitor, who can work to get me the best deal.

[sgclacy]

If you intend to give your purchaser a share of the freehold, you transfer the freehold into both your names and then you both execute on the same day an overriding lease to you of the other flat

The value of the other flat for lease extension purposes is based on the flat being in a lease maintained condition with a very long lease . Lease maintained condition would be the same as if the flat had been kept clean and tidy but presented today in a dated condition - coloured bathroom suite

As it is a two flat split, and you are one of the two lessees then there is no requirement for a section 5 notice on the transfer of the freehold and neither on the creation of the overriding lease

[Macromia]

Macromia - residential freeholder is not subject of section 5 and does not have to give notice.

Nothing that has been posted tells us that this is a residential freeholder, they have only referred to the property as "my flat" and haven't said whether or not they actually live there.

If they are a residential freeholder (or a close relative lives in the flat), it is true that rights of first refusal don't apply - but if they do apply if they own the flat and live elsewhere.

[sgclacy]

In a two flat split - if the freeholder wants to sell to a third party section 5 process is pointless - the freehold owning lessee can state they don’t want to be a co owner with the other flat and therefore the other flat cannot represent more than 50% and therefore cannot take up a section 5 offer

Also with less than 10 flats the legislation is clear that the section 5 notice is validly served if served on all but one - so if the OP does not serve on the top flat then the notice will be validly served if she serves it in herself - she declines it (of course) and the sale can proceed to whoever she likes

[Macromia]

In a two flat split - if the freeholder wants to sell to a third party section 5 process is pointless...

That's true.

Still, there's no harm in offering the other leaseholder the opportunity to buy a share of the freehold (which was seemingly done and rejected).

[thecrazy1]

Indeed. The top flat (mine that I live in) will be sold with a share (to be decided) of the freehold. The are not interested in the while freehold. Currently there is no lease on the top flat and one will be created.

The basement flat has a 62 year lease and a share of the freehold has been offered to the leasee. This has been rejected.

I believe I don't need to serve a section 5 as I am resident landlord.

Hopefully, at least I can get the top flat sorted and agree a share with the new buyers.