Long Lease holder buying-in to freehold

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    Long Lease holder buying-in to freehold

    Hi - not sure if this is the right forum to post this so apologies in advance...
    I live in and hold a long lease for the basement flat of a 6-flat building. The freehold is owned by a company set up 12 years ago or so, the company articles allowing for 6 shares in the freehold to be available, ownership limited only to flat-owners and only one share allowed per flat. 5 of the shares are currently sold and held by the owners of the other 5 flats but at the time the company was set up I didn't have the funds available to purchase my share; now I can afford to do so and I sounded out the others and yes, they're ok for me to buy the remaining share.
    My query is, how do I go about the process? Their email response giving (informally at this stage, I suppose) their consent says "We have consulted our solicitor who said it is up to you to start the proceedings". I would have thought this should just need to be a letter from me to them formally accepting their offer and the price they quote and agreeing to pay their reasonable legal costs?

    Last edited by malc_p; 10-01-2014, 11:14 AM. Reason: Clarification of share ownership criteria

    Originally posted by malc_p View Post
    I would have thought this should just need to be a letter from me to them formally accepting their offer and the price they quote and agreeing to pay their reasonable legal costs?
    Never having bought into a freehold, but freehold share included in flat, but yes, you have contacted the Freeholder, and you have made the first move.

    I would reply that you cannot instruct solicitors, as they are the freeholders, they have the shares, they issue the shares, they receive a cheque from you, they put the money in the bank.
    It's up to them to state how much they want and for you to pay a "resonable" fee for THEIR solicitor to carry out the "simple" proceedure of issuing a share, together with receipt of payment and associated legal stuff.

    You may or may not need a solicitor yourself.

    Wait a while as others on here may have a better understanding of the situation.



      Originally posted by ram View Post

      Wait a while as others on here may have a better understanding of the situation.

      Just bumping this to see if there's any other input before I go ahead; thanks.


        I am in a not dissimilar situation, albeit I am (managing) the freehold company. They are a little confused, as leaseholdanswers says, there are no real proceedings, they simply issue you a share in return for a cheque! However, before you get to that stage, you have to agree a value, which will involve consideration of the present value of the ground rent which you will no longer (I assume) pay, and what's known as the freehold reversion, both of which are beyond the scope of this reply. You might want to do a little work yourself and then if you feel comfortable propose a value, you never know you might get a bargain!

        Do you have any idea what the original shares sold for (you might be able to discover this from the accounts from 12 years ago, look in the share capital account, or other filings at Companies House). There's a strong likelihood (as per my situation) that (a) property values have risen and (b) given the low interest rate environment, ground rent is far more valuable now to the freeholder than it was 12 years ago, so (possibly, subject to your calculations!) you would get a very good deal if you managed to agree the same as was paid 12 years ago.


          Originally posted by aguila View Post
          as leaseholdanswers says.
          Do you mean "Ram" ?

          i would suggest Malc_p pays the price he was given 12 years ago ( he was offered a share 12 years ago ) as all that happened, in essence, is the other 5 paid his share.

          5 of them bought the freehold, so now the money that Malc_p didn't pay at the time is now being paid, and his cheque will be divided between the other 5.

          The Freehold has already been bought, so Malc_p just needs to pay what his share was at the time.
          ( £ 1000 / 2000 ? )

          MANY will argue with my statements above, but it's fact.


            Sorry, it was indeed ram...easy mistake to make around these parts!

            Not sure why "Malc_p just needs to pay what his share was at the time" is a fact? For a start (unless there's something in the Articles) there's nothing to force them to sell the shares at all, it would be purely voluntary. As to the value, it's a company, just like any other, its value will change depending on circumstances.

            On the other hand, if you are right, I might try calling Mark Zuckerberg and trying to persuade him to sell me some Facebook at its value 12 years ago...


              MANY will argue with my statements.

              The 6 leaseholders had the opportunity to buy the freehold 12 years ago.
              They would then, probably, have reduced the ground rent they all had to pay, to a peppercorn rent, thereby reducing the value of the freehold.

              Freehold worth is based on the income to be generated, ( will exclude lease extensions for this example ) so assuming the ground rent reduced, the income generated from the new ground rent will have deminished.

              Facebook makes millions of $ because it SELLS services. The freeholder sells nothing, therefore there is no revenue from having a share in the freehold ( Sorry, having a share in the company that owns the freehold.)

              The cost of the freehold to buy cannot be worth more today if they sell nothing, and there is no more revenue coming in from ground rent than 12 years ago. and assuming the ground rent has reduced as well.

              If the ground rent is £ 20 per year ( stupid not to reduce it to a low figure if you have just all bought the freehold) . 6 x £ 20 = £ 120 income per year, max, so how much is one sixth of a yearly income of £ 180

              Would you buy a busness that said, the max income per year is £ 120 and you can never get more than that, how much would you pay, in total for that businesss ? ?


                I think you are confusing the ground rent that the shareholders probably now don't pay, and the ground rent that Malc still does. Let's say he pays £100 a year...to get £100 a year on a bank deposit today you would need say £20,000* 12 years ago you would have needed maybe £2,000 to produce the same income...THAT is why (a) there is value and (b) that value changes in time (oh, and (b), the freehold reversion is probably worth twice what it was too...)

                Based on your views, I'd like to hear the response when Malc phones up and says "hi, I'd like you to give me a share in the freehold company for nothing"...

                *apologies to those who know what I am talking about, massive simplifications all round!


                  As to the original post it is a simple matter of replying " I am not sure what you mean by proceedings. I would like to acquire a share for ( most likely) £1( check the Articles) its face value and will pay the costs of the company secretary for the work that they need to do ( share issue stock transfer form etc). if there are are any other requirements or consideration please let me know."

                  There may be a sum or premium requested of as RAM says there is a value on the freehold from income derived or a value to lease extensions or other rights. As self management is attractive to buyers they may attach a cost tot hat as after all the only place he can buy on is from them.....

                  Once he gets answer we can comment.
                  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.


                    Originally posted by aguila View Post
                    I'd like to hear the response when Malc phones up and says "hi, I'd like you to give me a share in the freehold company for nothing"...
                    Our shares are sold for £1.
                    We never see that £1, as the seller sells it to the buyer.But I have to write a new one out.

                    When you set up a company ( Residential management - SIC code 98000 ) one normaly issues shares for each flat at a nominal value of £ 1. This is different to buying the freehold which may have cost thousands.
                    You buy the freehold, set up a company, then issue shares in that ( worthless ) company.

                    The articles or lease will state or should state the cost of the shares.
                    But there is historical value to the 6th share here, where it was offered as part of the purchace of the freehold, but no money was available, but now there is.

                    The other 5 MAY say, well give us the money we asked for 12 years ago, plus interest.
                    OR, issue a share at the value stated in the articles / lease

                    But untill we hear back what the other 5 ask for, and who seem not to know what they are doing, then my points are only for thought, for malc_p to digest.
                    The lease may say that all leaseholders must be a member of the company, which means they must be issued with a share certificate ( a piece of paper, which is different from "Buying the freehold for money 12 years ago, which the other 5 paid malc_p's part, which is all they can realy ask for. )


                      May I just tidy up RAM's comments; a company is not always worthless as freeholds rent and other income not to mention lease extensions and development potential can make them quite valuable. Sadly though the accounts often mistate or understate that value.

                      I am not sure that there is argument for the original offer to stand as it has long expired unless indications or terms said otherwise, and can simply be withdrawn. The underlying cost of freehold purchase may well have changed with leases having grown shorter and values having increased.
                      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.


                        I'm not going to quote the original price I was quoted 12 years ago for a share in the company that owns the freehold, but suffice it to say that when I recently asked them about buying my share, I took that original price and multiplied it by the property prices index for the local area and said "I think that's reasonable"; they came back with a higher figure and said "that's what we want from you to buy the 6th share,and we will not enter into negotiation" and as I see it, that's an entirely fair request from them. They don't need to sell me the share (although the company articles prevent them from selling it to anybody else). They don't need to sell it at all, but if they do, they stand to get some useful income - i.e. it's a perfect seller's market situation. The quoted share value of the company is £1 per share but that as I understand it is a legal way of effectively saying that the company itself is worthless; the capitalization of the company is another matter and consists of the amounts already paid in by the other 5 members plus whatever they can get off me. It would, in fact, be enough to pay each of them back their initial investment, which may be their intention. It's not up to me to second-guess that.

                        I can see the arguments you've been making - but in the end, if I want to buy my share of the freeholding company (I understand that there is no such thing as a "share of the freehold", it can only be "owned" by a single entity), then I have to pay them the amount they decide is fit.

                        My question was, really, what is required of me to accept their offer and "put the process in motion"?

                        Thanks all, it's still a most interesting discussion!


                          Originally posted by malc_p View Post
                          My question was, really, what is required of me to accept their offer and "put the process in motion"?!
                          1) As stated, accept their offer, as it's up to them.
                          THEY have an item for sale, you want to buy it !

                          2) Bit like going into a shop and saying I would like to buy that item, and they say, well, send us a solicitors letter, we will communicate only with him, then we will have many letters going back and forth, then you may get the goods in 3 months time.

                          3) I ask What is the advantage of buying into the freehold ? -- none as far as I can see, as all you will be able to do is attend the A.G.M. shareholders meeting, and regarding voting for directors, wich is all you can do, you will be outvoted by 5 to one.
                          Having a "share" gives you no clout, as you have "clout" by being a leaseholder, you can sue "The company" if they do not perform, you can go to the FTT ( LVT ) on service charge matters.

                          4) What will you gain by spending thousands ?

                          5) I assume only one person has been communicating with you, a Director or Company Secretary, and it may only be his quest to fleece you.
                          I suggest you write to all the leaseholders, all 6 ( one or more will be a Director ) stating that they paid £ x extra 12 years ago over and above what they expected, as you did not have the money at the time, and you are prepared to pay £ x now, and are they all acceptable to your offer, and will be an unexpected cash input for all of them.
                          I think you may be surprised at some of the answers.



                            If you are willing to accept the asking price, just write back a simple letter and say that you wish to accept

                            Ask the company director to send you an invoice under company headed letter paper with a copy of the minutes of meeting showing the Board of Directors has agreed to issue the share at agreed price X pds.


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