Should we buy the freehold?

[reallymadwoman]

We own a buy to let flat in a converted office building. There are 12 flats altogether.

 

We are expecting the current owners to offer to sell the freehold of the building in the near future. On the face of it, buying the freehold between us sounds like a good idea, but we don't really know what the pros and cons might be. Since the landlord can already get us to pay for things like a new roof, would we be any worse off owning a share in the freehold?

 

One of the mortgage conditions was that they wouldn't lend on freehold flats, which is partly why we're dubious, but other than notifying them if we do buy a share is this likely to be a problem?

[Guest]

do you currently 'own' the flat leasehold?

[stu007]

This link may be of help: http://www.lease-advice.org/publications/documents/document.asp?item=76

[caro]

If all the owners buy a share of the freehold then you'd probably need to form a management company to run it. Who would take care of getting the new roof, getting tenders, etc. What would you do if one of the other owners didn't pay their share, or didn't agree that it needed doing. Do you want to take on the responsibility of running things which may save you paying the current freeholder? If you don't want to do it, would one of the other owners be willing? Do you know and trust this person to do it?

 

 

Obviously there may be benefits as you'd have more control, but as stu's link indicates, there can be problems with disputes between parties.

 

 

Think long and hard before making a decision.

[Steve__M]

A friend of mine lives in a place where they jointly own the freehold and manage the place.

 

For a while, my friend was the elected head (or whatever they call them) of the management board.

 

After a bit they agreed to pay a bit more to pay someone to do the accounts and issue stroppy letters to non-payers, but the residents are still in charge. If work needs done, they have a consultation, and additional payment is requested for whatever is agreed. Non-payers are mostly non-resident landlords. The slightest threat of a CCJ written by someone who *will* take them to court causes them to pay up.

 

My friend can get *massively* stressed by the tiniest of things, but remarkably, has never got stressed about this. So I'd say it could be a good idea if you could get a core of people who can cooperate in getting this set up.

[reallymadwoman]

Thanks for the many and varied opinions - lots for us to think about and confirmation that it isn't as easy as you might expect. If I have any more questions I'll come back and ask, and I'll also update with our decision and any consequences.

[andydd]

There are various options when it comes to Leaseholders buying the freehold.

 

RTM (Right to Manage) – This can be used to take over the management of the building by the leaseholders (via a Ltd Company) but the Freeholder still remains and owns the land and receives ground rent, but for many LH’s this is ideal, they get to arrange the insurance, service charges, etc

 

RTE (Right To Enfranchise) – As above but you also own the freehold BUT the Freehold may be very expensive, sometimes tens of thousands depending on property and time left on lease.

 

A Freeholder can be forced to sell or give up management by these two or the FH can be sold informally by offering it to the leaseholders and then others.

 

There are benefits to buying it as you would then own (shared) a building/land that may be valuable.

Many though strive to just take control of the management (which can be done cheaply through RTM) especially if their Fh is a pain in the arse or that they feel the service charges are too high.

[king12345]

I would purchase the freehold.

This would avoid being charged £75 to change a light bulb and £200 to remove a bucket of hardcore left on the building doorstep.

Once you form your own management company you have a say about how the money is spent and can jointly appoint the most convenient / reliable contractors.

[unclebulgaria67]

With blocks of flats, even if you owned the freehold, you could still be subject to charges. With a relative of mine who owned the freehold with other flatowners in the block, they got a management company involved. If any of the resident had an issue with the flats they would contact the management company. My relative had to go into a care home and her garden became a little untidy. Another resident mentioned it to the management company who sent a letter giving notice that unless it was tidied up they would charge £100 to send a gardener around. Of course we tidied the garden when we went to check on the property, but it was only a half hours job to do.

 

If you buy the freehold, make sure you are involved in the running or setting up of any management of the flats. Flats get sold or rented out and you can end up with neighbours who you might not get along with, as much as the people you originally dealt with.

 

Best advice is to sell the flat and buy a freehold house instead.

[andydd]

If you buy the freehold then it's upto you to employ a seperate management company if you don't like how they operate as in the above post then you can simply get rid of them or simply do the management yourself or with other directors.

 

Don't forgot about rtm though which can be a cheaper option.

 

I must say saying sell the flat and buying a freehold house is not that helpful, as we don't know the op's finincial situation....!

[reallymadwoman]

Again many thanks for the helpful comments.

 

The existing management company are a firm I know and have worked with at other properties for a while and I have no complaints whatsoever about their management. We are going to be offered the freehold on a 'first refusal' basis as the current owners have gone bust. In those circumstances if we don't buy it, it will presumably be offerred on the open market and we could end up with just about anyone as landlord so overall, subject of course to being able to afford the price, I'm inclined to think we'd be better off with the freehold than without.

 

The price is of course the potential sticking point. Given that our mortgage lender (and most others I've enquired about) won't lend on freehold flats we'll have to find the money ourselves. Does anyone have a clue why banks/building societies won't lend on freehold flats?

 

And just to make things clear, I can't do houses as I can't get up the stairs and that applies even though this is a buy to let property - not much point me buying something if I can't even look at half of it!

[admiral.adama]

It's more likely that the bank won't lend on just a freehold or a part of the freehold. However, you also have one of the leases.

 

You really need to seek specialist advice on this one as there are so many things to consider aside from how you will raise the money (e.g. will you have shares in a company that owns the freehold or will you each be individually named). There's a forum called Landlord Zone that may be helpful for more informal advice.

 

Don't forget though that a share of the freehold can be to everyone's benefit...

Again many thanks for the helpful comments.

 

The existing management company are a firm I know and have worked with at other properties for a while and I have no complaints whatsoever about their management. We are going to be offered the freehold on a 'first refusal' basis as the current owners have gone bust. In those circumstances if we don't buy it, it will presumably be offerred on the open market and we could end up with just about anyone as landlord so overall, subject of course to being able to afford the price, I'm inclined to think we'd be better off with the freehold than without.

 

The price is of course the potential sticking point. Given that our mortgage lender (and most others I've enquired about) won't lend on freehold flats we'll have to find the money ourselves. Does anyone have a clue why banks/building societies won't lend on freehold flats?

 

And just to make things clear, I can't do houses as I can't get up the stairs and that applies even though this is a buy to let property - not much point me buying something if I can't even look at half of it!

[ashmk]

I know little about this so just throwing an idea around but could the leaseholders form a LTD company to buy the freehold. That way the owners of the flats do not directly own the freehold but rather a share in the company that does? This LTD company could also hire a management company to deal with the charges.

[andydd]

I know little about this so just throwing an idea around but could the leaseholders form a LTD company to buy the freehold. That way the owners of the flats do not directly own the freehold but rather a share in the company that does? This LTD company could also hire a management company to deal with the charges.

 

Yes, that is the normal situation in an RTE (that I mentioned above), or actually the most likely scenario is an RTE. Selling the Freehold to an individual leaseholder or to another landlord/company if they dont want to buy it is quite rare.

 

The OP is correct in that they do face a risk in that it might be sold to someone unscrupulous but it may well be sold to a respected company/individual, in reality the actual ownership is a bit irrellevant as its the management company they wil do the day to day work, set service charges, etc and this can be taken over by the tenants/leaseholders by an RTM or in certain circumstances if they are really poor a new management company can be forced through by an FTT (LVT) application.

 

My advice to the OP is not to worry too much about buying the freehold, or at least find out the cost, IMO its not worth getting a huge mortgage just to purchase it, the reality is you prob wont notice much on a day to day basis whoever owns it.

 

Dont forghet there is a lot of law to help LH take on bad FH's, I myself have had lots of battles against mine and been refunded many thousands in county court or LVT (now FTT).

 

There is a government run website Lease Advisory Service that can fill you in on more details about RTE and RTM.