Been offered the freehold

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    Been offered the freehold

    Hello, I've just been offered the freehold of my building, a small terraced conversion into 4 flats, and I'd really appreciate some advice.

    The situation is as follows: I've recently purchased the leasehold of one of the four flats in the building from the current freeholder. He has sold two other flats in the building in the last few months and hopes to sell off the fourth flat soon.

    My flat has quite a considerable (rising) ground rent and it is my belief that the other three flats in the building have the same ground rent. Also, all four leases were, to the best of my knowledge, drawn up at the same time and have approximately 115 years unexpired.

    He is offering the freehold to me for a sum approximately 20 times the current total of all 4 ground rents. The ground rents double every 25 years, so the ground rent will double for the first time in 15 years. If he does not sell the freehold to me it'll probably end up in the hands of a ground rent investor, who will sweat the assets - the nightmare situation.

    So my motivations for private purchase are (a) to keep the freehold out of the hands of a ground rent investor who will charge ridiculous service charges and hand over the property to a slimy management company who will ask their friends to put scaffolding up and replace the windows every 6 months and generally do a bad job, (b) the ground rents and the growing reversionary value, (c) as a resident leaseholder I have a real interest in the building and (d) even though the other leaseholders also of course share an interest in the building, a relative's previous experience of forming a company with other leaseholders and purchasing the freehold was a costly waste of time which only made the solicitors/accountants richer.

    What other factors need to be taken into consideration? My solicitor will obviously do the due diligence to ascertain the conditions of the other 3 leases, but I really intend to keep conveyancing/survey costs to a minimum as its such a small transaction. A lot of the difficult stuff like damp-proofing, a new roof etc have already been handled recently. Of course I would only be personally paying 1/4th of those expenses but its nice that managing those improvements will not hopefully be my responsibility for a while. Its a simple building and I intend to manage it well myself - am I legally obliged as freeholder to use an accountant, for example? Again, I know that the costs of employing one would be passed on to the leaseholders. I'm assuming I/he need to post notice and RFR to the other leaseholders even though I'm also a leaseholder?

    Thanks for all your help!

    #2
    If he has sold three of the four flats, and is not a resident landlord exemption he cannot offer it to you, he must offer it to all the qualifying tenants.

    The freeholder obligations an the costs he can recover are set out in the lease.

    Yo can look at eh Sticky in the forum for the RICS code
    read through LAS site
    Look at the ARMA downloadable publications and advice guides.

    You can of course also look at letting the freehold be sold and exercise the right to manage between the four flats, keeping the "cash" for your homes, the building, not the landlords pocket.

    Even with a high end rent, with 115 years leases that is often less than buying the freehold over the average time owners are often in their flats.

    You can also avoid getting the others to agree to buy the freehold on newly purchased homes ( as well as have to make up the sortfall if one or two decline) and protect your own investment by extending your own lease.
    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


      #3
      Thankyou for your advice.

      Originally posted by leaseholdanswers View Post
      If he has sold three of the four flats, and is not a resident landlord exemption he cannot offer it to you, he must offer it to all the qualifying tenants.
      Aah. I always thought (scenario 1) he could offer me a price, we'd negotiate it to X and then that price would also be offered to all the qualifying leaseholders who, with a 50% majority, could nominate person/company Y to purchase the freehold at price X. I didn't know that I necessarily have to purchase the freehold with the other tenants in company Y (or with there explicit approval as nominated person Y).

      I just assumed that, assuming the qualifying leaseholders cannot muster a 50% majority in favour of any person/company Y (and I really cannot imagine them doing this in this situation) then, after the 2 month or whatever RFR waiting period, I could purchase the freehold on my own.

      Originally posted by leaseholdanswers View Post
      You can of course also look at letting the freehold be sold and exercise the right to manage between the four flats, keeping the "cash" for your homes, the building, not the landlords pocket.
      If I am indeed mistaken and the freehold necessarily has to be purchased collectively as above, then I suppose forming an RTM company would be the second least-worse option, yes. I just know of too many instances where management companies elected by the freeholder line their own pockets and co-ordinating action with other leaseholders to bring something to tribunal is costly and difficult, so everyone just lets it slide.

      Originally posted by leaseholdanswers View Post
      You can also avoid getting the others to agree to buy the freehold on newly purchased homes ( as well as have to make up the sortfall if one or two decline) and protect your own investment by extending your own lease.
      I don't savour the idea of paying the inflated legal costs of the ground rent company to add 90 years to the lease!

      All in all I'm swayed towards doing a deal with the current freeholder and buying the freehold under 'scenario 1', above. Am I mistaken and this is not possible? - do I have to buy in concert (even just to encourage the other leaseholders to nominate me to buy as a person Y) with the other leaseholders? If so, then I suppose forming an RTM company and continuing to pay ground-rent and, again, having to pay the costs associated with leasehold extension, might be the way forward. However, I do not see this level of cooperation being likely (the same reason I doubt we would collectively enfranchise) and so I would really appreciate advice as to whether I could just purchase the freehold myself under 'scenario 1'. I am able, at the moment, to just about afford it with a little negotiation, and the return I would get on the ground rents, plus the amount I could save on my share of the service charge, make it probably a better return than I could get in the bank..

      Comment


        #4
        You do understand the R2FR correctly, my earlier replay was to ensure that the freeholder was not offered to you without it being offered to all. having agreed a price you could be the nominee purchaser or the default one of they fail to accept the offer.

        Even if you buy the freehold yourself, the price would take into account the cost of buying out the right to
        a: receive rents from all 4 flats
        b: the right to sell lease extensions to all four flats.

        Even if you re the buyer a and b are still part of the cost.

        You would then have to deal with other lessees and take on the obligation of providing the services and recovering costs in accordance with the lease and legislation.

        While you might find economies,you will still have to pay out for your share of the services to the building...

        The reason for suggesting RTM is with 115 year leases that are long enough for most, easily sold without any real effect on sale value at 90 plus years, while the rent is stable for 25 years.

        While it is open to stagnation, equally it shares a burden that the freeholder alone bears , which is important particularly if your circumstances change.

        Do you want to deal with the huge leak or storm damage while on holiday in Australia?
        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


          #5
          I was considering just holding off until I know that the freeholder was in the process of selling to a third party, which would trigger my RFR - I am content with him as freeholder, but would not wish the freehold to be sold to another company and to be managed by Crookes & Thieves Ltd et al.

          (1) However, I have only recently realised that I am not a 'qualifying tenant'. Indeed, none of the tenants are - none have held the lease for >2 years. I assume this means that the landlord could sell the freehold under us tomorrow with zero notice and no Section 5 notices issued?

          (2) Furthermore, the freehold is currently owned by a Ltd (the limited company solely established to own the freehold of this particular property) of which the landlord is the sole shareholder and director - so I assume this means he could also sell his shares in said company and RFR/Section 5 would also not be triggered, even if I were a qualifying tenant?

          If (1) and/or (2) are true (are they?) then this substantially strengthens the case for me to purchase the freehold. Indeed, if (2) is true, I may just purchase his shares and thus not have to worry about whether the other leaseholders are qualifying leaseholders?

          Are (1) and/or (2) true?

          Thankyou again, leaseholdanswers, and anybody else who could advise.

          Comment


            #6
            In 2, a sale of the company does not trigger R2FR. I have and have had developer investor clients who set up schemes on this basis.

            In 1 there is no qualifying period for R2FR.
            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


              #7
              Has any offer for sale of freehold been made to leaseholders in writing ? If not and you have sufficient savings, you could make an offer to buy, pitched at 16-17 times annual ground rent.

              Comment

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