Buy freehold or not: Auction vs enfranchisement

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    Buy freehold or not: Auction vs enfranchisement

    I own one of four maisonettes in a block, each valued at £200,000. My ground rent is £12 pa and there are 158 unexpired years on the lease. I've estimated the freehold value at £1,200 (£300 each). Is this about right?

    The freeholder wants to dispose of the block freehold and is proposing £3000 plus his solicitors fees. This was in 2005.

    Myself and another resident are interested due to potential savings on the service charge (buildings insurance and agent fees) which was £510 each in 2006, and increases c.20% pa. Would the residents that are not interested in the freehold have the same cost benefits without any responsibility?

    The freeholder now proposes to dispose of the block freehold at auction, if residents arent interested. I would expect to achieve a better deal at auction and if not then enfranchisement is an option with the new freeholder. Does this make business sense to bid at auction?

    Finally, I am in two minds about sharing the freehold with my neighbour due to concerns that a business relationship would be unsuccessful. I would consider purchasing the freehold on my own at auction or keeping my leasehold. Any views?.

    #2
    The value of the freehold is worth approx:-

    Value of £12 X 4 = £48 per annum at 7.5% = £640.00

    Value of reversion £800,000 (4 X £200K) discounted back at 5% over 158 yrs = £360.00. This is based on a generous interpretation of Cadogan and Sportilli. many would argue "nil" for this part of the calculation

    Marriage value - nil

    Therefore value of freehold = £1000 exactly.

    The most important aspect is the containment of professional fees in this matter you could easily spend £2000 plus on the total of your own solicitors and surveyors fees in addition to the Landlords

    I would suggest you set out your valuation (for £10 made payable to "Children in Need" I will do you a nice spreadsheet where you can alter the variables ) and send it to the Landlord and invite him to put forward his valuation but offer instead of £1,000 offer £1,500 and £500 towards his legal costs. Therefore making it clearly worth his while doing a deal outside the Act.

    Any savings you make on the buildings insurance will be enjoyed by the non participators however if there is a provision for a management charge you may feel justified in levying a modest charge for administration.

    You may wish to consider holding the freehold by way of a trust . The trust would hold the freehold and you and the other purchasers would be trustees of that trust. This is useful should anyone go AWOL . Because if they are on the title deeds as a joint owner it is nigh on impossible to remove them. However if the freehold is held as a trust then you simply remove them as a trustee. Your solicitor will be able to give you better advice on this point I am sure

    The landlord may very well do a deal with you and offer to you as an individulal the freehold after having gone down the Section 5 route. The costs of selling at auction an investment of £1k would be enormous. Could even wipe out the £1k sale proceeds!!!

    Comment


      #3
      A. sglacy is correct.
      B. Your L has to offer f/r to collective lessees before selling at auction. See LTA 1987, s.5 et seq
      C. Joint ownership of f/r, if lessees succeed. is on an automatic implied trust. No need for separate Trust Deed. Refer to my CONV. FORUM thread on joint ownership.
      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


        #4
        Buy freehold or not: Auction vs LTA

        I appreciate the benefit of both your expertise and would be pleased to make the charity donation. I intend to research according to the list below and then to approach the freeholder:
        1) solicitor / surveyor quotations (as this is the main barrier to proceeding)
        2) LTA 1987, s.5 et seq
        3) buying outside of the act (either as an individual or joint ownership)
        4) refer to my leasehold in relation to the management charge
        5) implied trust and deed trust (either as an individual or joint ownership)

        Comment


          #5
          With each unit worth 200K each, really 250 pds for a 1/4 share of the freehold is a MUST buy situation because it seems that you can recover the cost in 2 years by savings in reduced service charges.

          When you come to sell your property, the offers to buy may be 5K -10K below asking price but if you offer a SOF, you are in a better position to resist accepting lower offers.

          You should put these points to the other leaseholders and get them to participate with you. It makes sense to stop collecting ground rent.

          So don't hesitate and just get a solicitor to put that offer to the landlord. I think sgclacy has done you a big favour and you should send him a cheque for his valuation.



          .

          Comment


            #6
            Thank you

            Thank you sgclacy. I do really appreciate your advice very much and im going ahead as advised.

            Comment

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