Freehold purchase via company ltd by shares

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    Freehold purchase via company ltd by shares

    We along with 7 other leaseholders are looking to buy the freehold in a block of 8 flats and the freeholder is willing to sell. We are happy with the price as well as the surveyor's calculation of each leaseholder's cost for purchase of freehold.

    6 of the 8 flats have 71 years remaining on their leases and 2 of the leaseholders have recently extended their leases to 96 years but will still be participating in the freehold purchase. 6 flats are similar in size/value but 2 flats are completely different in size & value.

    The solicitor has recommended forming a limited company and two shares would be allocated to the owner or owners (one each in the latter) of the individual leasehold properties. The freehold would be transferred to this new company with the shares to be transferred to the new owners of an individual leasehold property on any sale.

    Our flat is the largest in the block of 8 and we do not understand the relationship between the shares in the company (i.e., 2 shares per property) and the individual contribution for purchase of the freehold which vary from £1,400 (for leaseholds of 96 years) to more than £12,500 in our case.

    We are unsure of the correlation between the shares in the new company and how this translates to the fact that our contribution to the freehold is much higher than any of the other leaseholders, yet we would get the same number of shares in the company as a leaseholder contributing just £1,400.

    Is this normal i.e., same number of shares allocated to each shareholder irrespective of individual contributions?

    In my mind in a commercial company, the shares allocated would directly correspond to the amount invested into the company.

    Any advise and suggestions would be most appreciated.

    #2
    Based on your post I worry if the solicitor is unaware as to the big picture. By all means forward this post for them to consider.

    There are four things, in the main that you are buying into.

    1; The freehold interest and right to receive rents fees etc
    2: your initial share purchase at face value
    3; The uneven contributions reflect the likely return on individual flats from the sale of a lease extension to the flat owner(s)- you and the others should therefore obtain a lease extension, even those with 96 years, to ideally 999 years and pay a peppercorn rent *

    4: The contribution shortfall of non participants and the likely return on selling lease extensions to them( note they might take a lease extension but not want to join the club).

    Item 3* you might take the time to modernise the lease clauses however that will increase your legal costs as a simple deed of variation will deal with change "96 to 999" but it is likely that your FH companies admin costs or its liability insurance will not be recoverable under the existing leases.
    Retaining a ground rent allows for those to be paid, and any surplus can be retained for a rainy day.
    Do make sure that your Articles allow for the shareholders to meet expenses that aren't recoverable under the lease.
    Take out directors and officers liability insurance, a must, with legal expenses cover.


    Item 4 the optimum way to deal with this is make this a loan which is repayable later when people extend or buy in.
    it has the advantage that even you sell and move on, you surrender your share to another owner, but are still due a repayment or profit in due course.
    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
      I should have mentioned in my original posting - the leases for all participating leaseholders will also be extended to 999 years.

      Thank you very much for your advice re Articles to allow for the shareholders to meet expenses and the liability insurance with legal expenses cover, and particularly for item 4 (loan to purchase non-participants’ freehold) which would protect the original investors. We will also retain the ground rent to allow payment of ongoing expenses and for any surplus to be retained for a rainy day

      Re item 4 (loan to purchase non-participants’ freehold): can we include a clause to say that “profits” from extension of non-participants’ leaseholds would be paid to original investors/lenders and not form part of the company profits?

      Re: Shares in new freehold company: Please help with my original query re shares in the new freehold company – 2 shares to be allocated to each participating flat even though the contribution from each is very different.

      Is this normal i.e., same number of shares allocated to each shareholder irrespective of individual contributions?

      In my mind in a commercial company, the shares allocated would directly correspond to the amount invested into the company

      Would appreciate any advice on how to reconcile the correlation between the shares in the new company and how this translates to the fact that our contribution to the freehold is much higher than any of the other leaseholders, yet we would get the same number of shares in the company as a leaseholder contributing just £1,400.

      Comment


        #4
        Originally posted by Tiggyboots View Post
        Re: Shares in new freehold company: Please help with my original query re shares in the new freehold company – 2 shares to be allocated to each participating flat even though the contribution from each is very different.
        But I have dealt with it, you are trying to re frame it.

        If your varying contributions are addressed/made up by granting a lease extension, of varying value/contribution as between the flats, an equal contribution for non participants and future equal profits by a loan, then you are all then on an even footing buying the residual freehold on a 2 share per flat basis, as after all your income is then ground rent and minimal expenses.
        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 guess your block has 8 leasehold flats originally sold under 99 years leases including 6 units now down to 71 years remaining on the lease and 2 units extended back to 99 years lease about 3 years ago.

          The buying price for the freehold of the building basically compensates the current freeholder for loss ( on 6 flats @ 71 years lease plus 2 flats @96 years lease ) of a) ground rent income for next 71 or next 96 years (b) loss of premium income for granting 90 years statutory lease extensions (c) property value gained at reaching expiry of the lease.

          The 6 flats on 71 years lease would have had to pay for lease extension cost which includes a component equal to 50% gain in marriage value ( this component applies if lease has fallen below 80 years at date of extension ).

          The 2 flats on 96 years lease have ALREADY paid the cost for 1st lease extension back to 99 years to the freeholder and so do not have to pay 50% marriage value contribution again.

          Hence these flats on 96 years lease have much lower contributions to the total price for the freehold.

          You can calculate the rough cost of statutory lease extension for your own 71 years flat using the calculation method posted LXforum thread no. 11080. You would have to pay for this if you do not join in buying the freehold.

          Comment


            #6
            I had a flat in a block where the 1 bed and 2 bed units (on 123 years long leases) paid annual ground rent at 100 p.a and 150 p.a respectively . When the freehold was purchased , each flat paid a sum equal to years multiple of the ground rent.

            So 2 bed units paid 50% more than 1 bed units for one share per flat in the company buying the freehold.

            Comment


              #7
              Dear Leaseholdanswers and Gordon999 - Thank you very much for your responses and advise which have been really helpful and answsered my questions very clearly.
              This forum and the advise of Senior Members is an invaluable source of information - Many thanks one again for your help and best regards.

              Comment


                #8
                Originally posted by Tiggyboots;422263
                [U
                Re: Shares in new freehold company:[/U] Please help with my original query re shares in the new freehold company – 2 shares to be allocated to each participating flat even though the contribution from each is very different.

                Is this normal i.e., same number of shares allocated to each shareholder irrespective of individual contributions?

                .
                Each flat should have one share and one vote irrespective of contributions. Otherwise you will end up with major problems when coming to vote on matters.

                Comment

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