Purchasing freehold as sole purchaser: Ltd co v private?

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    Purchasing freehold as sole purchaser: Ltd co v private?

    Hi

    I've searched the forums but not found an answer to this, as it seems the main answer is "It depends"!

    A bit of background: I am in the process of buying the freehold for the house that I own one of the flats in (BTL). We were originally trying to buy as a group purchase by all of the 4 flat owners, but there was a big falling out between the others. As I seem to be the only one who hasn't fallen out with anyone, I offered to buy the freehold myself.

    We all have 63 years left on our leases, so this started as a lease extension, the freeholder then offered to sell us the freehold as he no longer wants it, so it's all been on a voluntary basis.

    We had agreed a negotiated down price before things went pear shaped, and the freeholder has agreed to sell to me at that same price. The other leaseholders have agreed to forward me their lease extension money so that I can buy the freehold and then issue their lease extensions.

    All good so far!

    We had planned to buy the freehold by forming a limited company, and it seemed sensible to me to do the same, with my husband and me as co-directors and equal shareholders... I am now getting slightly cold feet as I am concerned that I will be committing to a more complex and costly route than may be sensible.

    The freehold income is ground rent of £30/year/flat, and the current freeholder charges £330 maintenance, which is split between the flats based on the old rateable value. So the entire income over the year is only £450, of which I have to pay a proportion for my flat.

    So, is it really worth setting up a limited company to manage the freehold, or is this just over-complicating things? I suspect that with accountancy fees, etc, the company might just about break even!

    Apologies for the length of this - wanted to give enough info for an informed response!

    Many thanks.

    #2
    Can't advise you on whether to own as an individual or as a Ltd Co, as this is a personal decision. My preference is to use a company, and mine are in an unlimited company owned by me and my wife.

    In either case, you need to be careful that you comply with the Landlord and Tenant Act 1987 section 5. Unless you are 100% sure that you are in the clear, once you have decided on purchasing as an individual or company then get the s5 notice issued to the others.

    Sounds like you have been messed about, so just do the purchase as a straightforward sale from the current freeholder. In time you will be quids in, as at some time the others will want to extend the lease. When they do, you will be entitled to a premium.

    Once the the notice has been issued, they will have no comeback once the time for them to respond has expired. The purchase will then be clean and above board.
    On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

    Comment


      #3
      Thanks Esio

      What's the difference between being a limited company versus an unlimited one? I've just done a quick search and it isn't clear except to me other than the limited liability or not aspect. Sorry, familiar with being a sole trader as I have been for years, but I start to get lost at anything more complex!

      Appreciate your advice about the Section 5, which my solicitor has already suggested should be issued. As it is, all the other leaseholders have agreed to the sale, but I want to make sure it is all done to the letter of the law, as the last thing I want is more problems down the line. They'll all be paying me for their lease extensions up front to help fund the freehold purchase, so there won't be any profit down the line for a long time!

      This has all been a very steep learning curve for me, and I'm still scrambling up it!

      Comment


        #4
        I think you can buy the freehold title in your personal name if you are the only party to the purchase. But you should consult with your accountant on whether there is any profit to declare.

        Usually when flats are given a statutory 90 years lease extension with peppercorn ground rent , there is no ground rent to collect .

        Your total service charge budget of 330 pds for the property seems to be too small. Many "4 flat" in a house will pay more just for the annual buildings insurance. You need to check the wording in your lease about what is covered by service charge spending and if you can include a sinking fund for 5 years external painting ? .

        Comment


          #5
          Originally posted by SarahJA View Post
          Thanks Esio

          What's the difference between being a limited company versus an unlimited one? I've just done a quick search and it isn't clear except to me other than the limited liability or not aspect.
          A company that is unlimited is pretty rare. A notable example of a large one was the clothes retailer C and A. With an unlimited company, the shareholders are fully liable to the company without limit - same as businesses structured as a sole proprietorships or partnerships. The upside is that annual accounts are kept private; they are not sent each year to Companies House for publication. Thus leaseholders won't be able to find out the level of profitability. This is a big benefit, as our ground rent portfolio delivers decent returns - and without descending to the alleged dubious modus operandi of people like the Tchenguiz brothers.

          The only requirement is to lodge the annual return and pay the £13, same as limited companies.

          Obviously, an unlimited company should only be involved in areas that are pretty safe which ground rent reversions are.
          On some things I am very knowledgeable, on other things I am stupid. Trouble is, sometimes I discover that the former is the latter or vice versa, and I don't know this until later - maybe even much later. Because of the number of posts I have done, I am now a Senior Member. However, read anything I write with the above in mind.

          Comment


            #6
            If your flat is owned in your name the Land Reg will not register the freehold in your name too, and will want you to surrender the lease.

            As there are other lease extensions to be sold in future, the biggest decision is which ownership is better for you on tax terms.

            You do realise that having bought the freehold you will be responsible for the upkeep of the building and need also to understand the numerous rights and obligations, right down to billing in terms of timing and the statutory requirements , and banking, as well. Whether your own costs of managing as opposed to expenses eg insurance and cleaning can be recovered depends on the lease.

            Most importantly you must understand that the service charge money is entirely separate to the companies/your FH money, and accounting for that is normally revered under the terms of the lease.

            An advantage of company is that if you deciding to sell the freehold at later date, you can do so by selling the shares and avoiding offering it to the leaseholders first.

            Filing accounts in a year with no lease extensions sold doesn’t need an accountant and therefore its really on the annual return fee and any corporation tax return.
            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
              Thanks Gordon999

              The lease extensions are on a voluntary basis, so the ground rent will stay as it is rather than going to a peppercorn one. It ain't much, but it's something!

              Sorry, it's the management charge that is £330, not maintenance. That is charged separately, at £100 per flat in advance twice a year, then at the end of the accounting year each flat is billed for excess maintenance (insurance, repairs, electric, etc) with the yearly statement. I don't know about any sinking fund - have done my best to read through the lease a few times, but other than the advance payments for maintenance that I've mentioned, there's no extra fund at the moment, and I don't recall seeing any mention of one.

              Comment


                #8
                Thanks leaseholdanswers

                I didn't know that land registry wouldn't allow the freehold in my name, no! I thought I could own it, but just that I couldn't grant myself a lease extension, so that would have to be done when I sell it down the line. Interesting...

                I thought I had a handle on all the responsibilities, but having browsed these forums have realised that there's a lot more involved than I'd thought. It is all a bit daunting to me, but I want to have more control over what happens in the place. The existing freeholder hasn't done much for a while, so there are things that need sorting. My other BTL flat has a freeholder that won't even send me a copy of the lease (I bought originally through an investment co that went bust - don't ask!), let alone deal with any problems, so I am very wary of getting an unknown. The other leaseholders in the building have promised that they will help out, as they know I'm getting them out of a bit of a hole.

                The deal is that the leaseholders will all advance the money for their extensions, which will fund the purchase of the freehold (with my contribution for my flat's extension), so the extensions will all be issued as soon as the purchase has completed. There will then be 63+99 years on each lease, so no potential for any more extensions till I'm long gone!

                I assume that it's OK to charge a management fee as that's what the existing freeholder has always done... but I suppose that doesn't necessarily follow... Think I need to discuss the leases with my solicitor some more. I wonder if I can increase the management fee to cover my expenses of running the company and/or my time? Needs to be investigated. I'm guessing that I can't increase the ground rent as that is written into the leases. Then again, do I need entirely new leases as I will be the new freeholder? Aaargh!

                I think it would be a good idea to use an accountant for the first year to cover all of this financial to-ing and fro-ing with advances and extensions, but great to know it should be easy enough to do myself after that. I'm used to doing my own personal tax return anyway (though I hate it!), so we'll see how that goes.

                Comment


                  #9
                  No the company expenses cannot be included in the service charge. If the lease allows you to levy a management charge, and it has to, then your level of costs would be set to meet all your expenses.

                  Well as your relationship between you as FH and them as individual leaseholders you want to make sure what you are in for. There is no time you taking it on, getting 4 peppercorn rents ( LOL) and taking time money and costs to manage it for nothing is there?

                  More importanlty does it allow for the fees of a managing agent if so you can always appoint one to do the day to day, and use it as a threat if they get out of line.

                  While modernising leases is an idea it may lead to more arguments and delay.

                  As there are tax implicatins to the lease extensions then I suggest you get that advice NOW as wel before exchange as ownership is key to all these issues.
                  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


                    #10
                    Many thanks for the pointers. We've taken advice as suggested, and decided to go with the most simple route, which is that my husband and I purchase the freehold in joint names, then we can issue me a lease extension as the sole owner of the flat. Keeps it all nice and simple, which I'm all for!

                    Comment

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