Collective enfranchisement- joint-only two flats in block

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    Collective enfranchisement- joint-only two flats in block

    Hi

    I'd appreciate some advice on jointly purchasing the freehold interest in my flat together with my neighbour. There are 2 maisonnettes in our building. The top floor flat (mine) is valued at ~220,000 with 81 years lease remaining. The ground rent is £150 pa for the first 33 years, £300 for the next 33 increasing to £450 for the last 33 years.

    The ground floor flat (my neighbour's) is valued about the same @ £220,000 with 91 years lease remaining. The ground rent is £75 for the first 33 years increasing to £150 and then £225 over the next 66 years.

    I have written to the freeholder and he has indicated that he is willing to sell the freehold for £5000 per flat. I guess on top of that we would have to pay for the freeholders and our legal costs.

    My queries are:

    1) What would be the indicative costs of the freehold purchase.
    2) I've had a look at the lease-advice site on how to get started. It indicates that a RTE company needs to be set up (although applications can still be made by a nominee purchaser) and a notice to the landlord served.

    What I am confused about is that on this forum some people have suggested that the leaseholders could negotiate with the landlord outside the 'Act' to save themselves the survey/legal costs. How does that work out ?

    Any help would be much appreciated.

    Thanks

    Rehan

    #2
    You do not need an RTE company, unless you want one. The f/r can be purchased in joint names (you + ground floor lessee [G]). Although there are 2002 Act amendments to the 1993 Act which would specify RTE company requirements, they have never been brought into force and probably never will be.
    JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
    1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
    2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
    3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
    4. *- Contact info: click on my name (blue-highlight link).

    Comment


      #3
      Collective enfranchisement (Freehold purchase)

      Thanks Jeffrey.

      I'd appreciate some advice on how much the freehold purchase itself would cost in my circumstances. Although I'm inclined to believe that the figure of £5k per flat quoted by the freeholder is fair.

      Comment


        #4
        The value of the freehold would be of the order of £12,251 made up of three elements for both flats:-

        TOP FLAT

        1) Capitalisation of the rent £150 for the first 33 years, then rising to £300 for the next 33 years and £450 for the final period. For the top flat you have in this case then you have 15 years left at £150, then you will have the present value of £300 for 33 years deferred for 15 years then added to that will be £450 for 33 years deferred back over 48 years (i.e. 15 + 33)

        PV of £150 for 15 years at 7.25% = £1,345

        PV of £300 for 33 years at 7.25% = £3,727 deferred for 15 years at 7.25% = £3,727/ (1.0725^15) = £3,727/2.85732 = £1,304

        PV of £450 for 33 years at 7.25% = £5,590 deferred for 48 years at 7.25%=
        £5590/(1.0725^48) = £5,590/ 28.778 = £194


        Total capitilisation of the ground rent for top flat £2,843

        2) Value of the reversion, Flat worth £220k with current lease probably worth £225k with long lease and neglible ground rent. This discounted back at 5% gives £225k/ (1.05^81) = £4,324

        3) Marriage Value – Nil (over 80 years remaining)

        Total for Top Flat = £2,843 + £4,324 = £7,167

        BOTTOM FLAT

        1) Capitalisation of the rent £150 for the first 33 years, then rising to £300 for the next 33 years and £450 for the final period. For the bottom flat you have in this case then you have 25 years left at £150, then you will have the present value of £300 for 33 years deferred for 25 years then added to that will be £450 for 33 years deferred back over 58 years (i.e. 25 + 33)

        PV of £150 for 25 years at 7.25% = £1,709

        PV of £300 for 33 years at 7.25% = £3,727 deferred for 25 years at 7.25% = £3,727/ (1.0725^25) = £3,727/5.753 = £648

        PV of £450 for 33 years at 7.25% = £5,590 deferred for 58 years at 7.25%=
        £5590/(1.0725^58) = £5,590/ 57.95 = £96

        Total for bottom flat £2,453


        2) Value of the reversion, Flat worth £220k with current lease probably still worth £220k with long lease and neglible ground rent. This discounted back at 5% gives £220k/ (1.05^91) = £2,595

        3) Marriage Value – Nil (over 80 years remaining)

        Total for Top Flat = £2,453 + £2,595 = £5,048

        If you applied under the 1993 Act the freehold would be valued at around £7,167+ £5,048 = £12,215 plus you would pay your valuers and the freeholders valuers costs plus certain elements of his legal costs.

        At £10,000 I would advise you to accept it

        Comment


          #5
          sgclacy, I really appreciate the detailed breakdown you have provided. It helps greatly in understanding the process.

          One other thing I was hoping somebody could throw light on is whether or not banks are inclined to see leaseholders obtaining the freehold in a favourable light (specially in my case where only 2 flats are involved) ?

          Comment


            #6
            I believe that banks don't care much who owns the freehold.

            Banks offer mortgage loans on leasehold property if the latter gives good security for their loan and the borrower has adequate income to service the mortgage payment.

            But when lease term falls below 80 years, the resale value of the property becomes less certain causing some doubts as to whether it can adequately offer security for the loan advanced by the lender.

            But it is good for leaseholders to own the freehold as this will protect them from extortionate charges demanded by some ground rent freehold companies.
            Also there is usually no ground rent collection and this helps in a sale of the property.

            Comment


              #7
              Collective enfranchisement- two flats- value?

              Just as myself and my neighbour were about to purchase the freehold, paying a price that the freeholder had suggested, £30,000, he decided to raise the price to £75,000.

              How can I get a ballpark figure on the price of the freehold without paying a surveyor as my neighbour is unwilling to spend any more money now that the freeholder has moved the goalposts.

              The property is in northwest london. My flat has 3 bedrooms, 1 bath, 1 toilet, 1 living room, 1 kitchen.

              My neighbour's flat is a 1 bedroom garden flat, 1 bathroom, 1 kitchen.

              Thanks:
              Loretta

              Comment


                #8
                Originally posted by Loretta View Post
                Just as myself and my neighbour were about to purchase the freehold, paying a price that the freeholder had suggested, £30,000, he decided to raise the price to £75,000.

                How can I get a ballpark figure on the price of the freehold without paying a surveyor as my neighbour is unwilling to spend any more money now that the freeholder has moved the goalposts.

                The property is in northwest london. My flat has 3 bedrooms, 1 bath, 1 toilet, 1 living room, 1 kitchen.

                My neighbour's flat is a 1 bedroom garden flat, 1 bathroom, 1 kitchen.

                Thanks:
                Loretta
                You need to assess how much each of you would pay to extend leases by the statutory 90 yrs. and to eliminate the ground rent.
                The total of these should approximate to the f/r vaue for collective purchase. Without a surveyor, how will you know? Perhaps LZ members may assist with valuation suggestions, but there's obviously a risk in tangling with a greedy f/r owner if you're unsupported by a chartered surveyor.
                JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                4. *- Contact info: click on my name (blue-highlight link).

                Comment


                  #9
                  Try calculating with average values of your properties with the years left on your lease and one year later at www.freeholdcalculator.com

                  Comment


                    #10
                    what are the values of each flat if they had very long leases and neglible ground rent.

                    What is the term remaining and the ground rent payable

                    Comment


                      #11
                      Collective enfranchisement-2 flats-acceptance problem

                      I have a very confused colleague who received a section 5 'Landlords Offer Notice' from the LL selling the freehold of the building where he lives. He owns the long lease. There are only two flats both leased. He wrote back to the LL and confirmed he wishes to accept the offer. However after the two months expired the LL wrote back saying the offer was not accepted as the deposit as stated in the Notice was not paid. I cant seem to see anywhere on the notice where it states the deposit must be paid with the acceptance. can anyone assist.

                      Thanks.

                      Comment


                        #12
                        As we can't see all the documents consult a solicitor; your colleague should always do this anyway before signing documents that have a legal consequence.
                        The advice I give should not be construed as a definitive answer, and is without prejudice or liability. You are advised to consult a specialist solicitor or other person of equal legal standing.

                        Comment


                          #13
                          Originally posted by mo999 View Post
                          I have a very confused colleague who received a section 5 'Landlords Offer Notice' from the LL selling the freehold of the building where he lives. He owns the long lease. There are only two flats both leased. He wrote back to the LL and confirmed he wishes to accept the offer. However after the two months expired the LL wrote back saying the offer was not accepted as the deposit as stated in the Notice was not paid. I cant seem to see anywhere on the notice where it states the deposit must be paid with the acceptance. can anyone assist.

                          Thanks.
                          L can serve a counter-notice demanding a statutory deposit in some cases, but there's nothing in LTA 1987 that demands an automatic deposit. There must be more to this problem than we are told.
                          JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                          1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                          2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                          3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                          4. *- Contact info: click on my name (blue-highlight link).

                          Comment


                            #14
                            Originally posted by mo999 View Post
                            I have a very confused colleague who received a section 5 'Landlords Offer Notice' from the LL selling the freehold of the building where he lives. He owns the long lease. There are only two flats both leased. He wrote back to the LL and confirmed he wishes to accept the offer. However after the two months expired the LL wrote back saying the offer was not accepted as the deposit as stated in the Notice was not paid. I cant seem to see anywhere on the notice where it states the deposit must be paid with the acceptance. can anyone assist.

                            Thanks.
                            Where there are two flats BOTH must accept the offer however where there are more than two flats 50% is required. That I believe may be at the root of the problem for your colleague

                            Comment


                              #15
                              Thank you for all your advice.

                              The LL has simply stated that as the acceptance was not accompanied by the £200.00 deposit (stated in the notice) the acceptance is not valid. He goes on to say that my colleague would need to now speak to the other leaseholder to see if she would allow him to jointly purchase. I now know from your advice that they both have to accept so I am thinking maybe the LL wanted to sell to the other leaseholder only.

                              Is my colleague able to challenge this on 'valid acceptance' and also on the fact that both leaseholders need to accept.

                              Comment

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