Should I Purchase The Leasehold

[hoofie]

Mods - feel free to move this if it's in the wrong place.

My wife and I live in Oz, but still own a flat in England. It's a converted mansion approx 100 years old that was turned into 6 flats.

4 of the current flat owners [who all live there] want to purchase the leasehold of the building from the current owner and have asked us if we want to join [6th owner is BTL and wants nothing to do with it].

The main reason for doing this is to avoid the management companies massive inflated costs for maintenance plus their uplift percentage and to have some control over the building.

The cost [our share] will be approx 500 quid for legal fees and some 2000 quid for our 1/5th share of the leasehold via a new management/holding company. The flat is worth maybe 120K in the current market but the mortgage is tiny. We have no plans to sell until the market improves in however many years.

Is their any real advantage in buying the lease for now and in the future ? Any comments gratefully welcomed.

[Bloo Loo]

what year were your children born? might help with our deliberations.

[MrPin]

Don't you mean freehold?

If so, then, yes, part ownership of the collective freehold is a good thing. You and the other lessees can arrange their own maintenance, etc. Using the builders of your choice..

Edited May 5, 2009 by MrPin

[EmpiricalBear]

The flip side is that you will then be liable for all the costs as the freeholder. (I think you are talking about buying the freehold rather than the 'leasehold').

This can be a recipe for problems as well. I know of cases where once the inhabitants buy the freehold, they then end up with none of them wanting to stump up to maintain a place properly. Unable to fund the maintainance at the correct level the place then degrades over time. Anyone remaining as leaseholder may then have a case to sue the freeholders if their property is damaged as a result of the poor maintenance.

There ain't no such thing as a free lunch, and sometimes those hefty maintenance charges really are what it costs to maintain an older property at a correct level of water tightness, air tightness, energy efficiency (don't forget those bottom inspectors!), health and safety, building regulations etc. etc.

[Tiger Woods?]

Mods - feel free to move this if it's in the wrong place.

My wife and I live in Oz, but still own a flat in England. It's a converted mansion approx 100 years old that was turned into 6 flats.

Is their any real advantage in buying the lease for now and in the future ? Any comments gratefully welcomed.

Is it listed? Ceteris paribus, I would consider buying the freehold but one should look into setting up proper contracts for managing the property...otherwise the you and the coowners will likely not be friends in the future.

[VeryMeanReversion]

Its easier to sell a freehold than a leasehold, especially when the term drops below say 80 years. Lenders see less than this as risky for their security.

And to keep the HPC'rs happy, if 5/6 owners are the new management company, you can charge the BTL'r whatever you like

VMR.

[Nationalist]

I think buying the freehold is a good idea, because...

1/ You can control the maintenance costs better than a management company would.

2/ You don't have to pay ground rent.

3/ The freeholder gets a sneaky commission on the insurance they're not telling you about. (Maybe.)

4/ You don't have to worry about the term of your lease.

In any event all costs would be passed back to the leaseholders so you'll be paying either way. It might be worth setting up a company to own the freehold and just being shareholders and directors in this company. The benefit would be limited liability in a worst case scenario.

[The Conveyancer]

On the whole I would advise you to go ahead with the freehold purchase. Freeholders do take the pee when it comes to repairs some times. Make sure a proper Management Company is set up to deal with the day to day running of the place. There is legal work that needs doing when the flats change hands so make sure a solicitor is appointed. Normally you would all get one share in the Management Company which you transfer for free when you sell your flat.

Oh and by the way, you can't just charge the BTL whatever you want, it doesnt work like that, you can only charge them a proportion of the cost of running the building.

[The Conveyancer]

I think buying the freehold is a good idea, because...

1/ You can control the maintenance costs better than a management company would.

2/ You don't have to pay ground rent.

3/ The freeholder gets a sneaky commission on the insurance they're not telling you about. (Maybe.)

4/ You don't have to worry about the term of your lease.

In any event all costs would be passed back to the leaseholders so you'll be paying either way. It might be worth setting up a company to own the freehold and just being shareholders and directors in this company. The benefit would be limited liability in a worst case scenario.

Terms of the Lease will still stand, you can't just do whatever you like with your flat once you purchase the freehold!!!! You have a share in the Management Company but the flat will still be leasehold, you would normally grant yourselves a 999 year Lease when you do the collective enfranchisement but it does not become a freehold flat. In fact having a freehold flat is a nightmare because most lender will not lend on it. For the exact reason that people can do what they like with it and the other freeholders in the block may refuse to repair the property.

Sorry, just read back and see that you said the "term" of your Lease not "terms", I do apologise, my mistake.

Edited May 5, 2009 by The Conveyancer

[hoofie]

Don't you mean freehold?

If so, then, yes, part ownership of the collective freehold is a good thing. You and the other lessees can arrange their own maintenance, etc. Using the builders of your choice..

Sorry yes I meant the freehold.

To the other posters : The structure would be a management company but replacing the current one with our own. And no, the building isn't listed but it is in a conservation area. The current lease is very long

Whilst we can't avoid [or would wish to] avoid maintenance the current feeling is that there would be at least more control over the way things are done and the choices made.

Edited May 5, 2009 by hoofie

[Sybil13]

It has ALL already been said in the thread but from personal experience I would say BUY IT BUY IT BUY IT.

We turned down a freehold once, advised by solicitor, as in one of these threads, he said "can mean more work getting money etc off other tenants". Then we got THE FREEHOLDER FROM HELL and it cost us tens of thousands with solicitors trying to get anything done. Visit CARL (Campaing for the Abolition of Residential Leasehold). It is an archaic systems that should be scrapped. Labour before they came to power promised to change it BUT it never happened. Why people hand over £500000 + for these flats but NEVER OWN ANYTHING I can't imagine. I suppose 999 year leases are one thing but these 99 years, forget it.

GOOD LUCK . I would imagine it is a good time to buy with prices falling as the value of the share of the freehold is based partly on the property value.

[Gone baby gone]

I would buy it. Will make it easier to sell and will avoid you paying the existing management company their % and also the ground rent.

The residents can form their own management company / sinking fund to deal with maintenance.

[Isakndar]

From personal experience it is not an easy ride.

I used to live in a block of 9 flats that had a resident's maintenance company to which all freeholders were shareholders, the company was managed by the Freeholder's agent - and he would declare the company dormant every year rather tahn submit accounts, then Freeholder's agent died with all the money in his own bank account.

It took two years to get 2 grand back, and following his death we got wind that the Freeholder was trying to sell it to another company, and we were informed by law of the pending transfer - we were able to challenge this and make our own bid - but we had to raise 15K which was cheap but some people really struggled to raise their portion. Also in order to to this we had to activate the company and start submitting accounts to companies house and the bureaucracy ballooned.

There is a great deal of work to managing well a small block of flats - once we we gained ownership I tried to farm the work out to an agency as I wanted to sell up and no -one else was interested/stupid enough to take over the running of the management company.

I had problems with non payers, there were BTLers who had three (then four) of the nine flats in the block (on the whole they were fairly conciencious about their investments), and dodgy neighbour trading cars from our carpark who I got into dispute with.

On the other hand we put in new windows, sorted out the grounds - it looked in reasonably good condition when I left.

There are many pitfalls and I would strongly urge you to get good legal advice, if you set up a management company where the owners are shareholders then that company can be taken over by one person if they buy a majority of the flats as BTL - as one of my neighbours was trying to do. Also if the company falls into abeyance due to lack of interest from the directors any property the company owns falls to the crown.

There are other solutions to this but our solicitor at the time said there was a large whole in the way self managed residential properties were regulated and provided for legally.

I was very glad to extricate myself from the situation, but on balance it was the best thing to do - but only because I had mostly reasonable neighbours.

[abharrisson]

Considerations:

1/ is the price right.... this is normally referred to as the "marriage" value.... if the others have taken advice and the price has been negotaited then it may well be about right... if they have just been offered a price and not negotiated then it may be wrong.

2/ You may not have to buy now.... there are cases where the freehold is bought but not all flats participate, in these cases you may well retain the right to buy it at a future date from the new freeholders for whatever price prevails at the time.

3/ You have to give consideration to how lojng remains on your lease.... if it has 800 years remaining then its not likely you'll see a real "price" benefit.

4/ Who will "manage" the building post purchase , its not a nice job and takes a lot of time and there are some serious disagreements along the way... many buildings in this situation appoint a management agent who charges something like £200 to £400 per flat to do all the paperwork.

5/ Will you save money on management charges.... its possible... you will have the right to get your own buildings insurance which you may get cheaper, running the block amongst yourselves will save on agents costs and you might argue that you can get works done more cheaply. But remeber that this means someone will have to commit to doing all the work, and works can easily go wrong and budgets spiral without proper management.

6/ have you any idea what process you will use to manage the block, will there be a costed long term maintenance plan incorporating things like internal decotations, roofing renewal, external decoration, window replacement, entry system contracts etc etc... the best run blocks which are self-managed runa sinking fund... ie a lot of work goes into a long term cost plan and service charge bills are set to allow for funds to build up to pay to pay for the big bills when they come along... this means that your costs are predictable going forwards.

7/ if the BTL person is not going to do it then the group that does go forwards will need to fund his share of the purchase and will need to be sufficiently well organised to ensure all works are carried out in accoradnce with the law with notices served on time etc etc.

8/ Don't forget that often the formation of a limited is necessary which entails further work.

Its by no means a straightforward decision, with the most difficult part being reaching agreement on how the block will be managed going forwards.

[SMAC67]

The flip side is that you will then be liable for all the costs as the freeholder. (I think you are talking about buying the freehold rather than the 'leasehold').

This can be a recipe for problems as well. I know of cases where once the inhabitants buy the freehold, they then end up with none of them wanting to stump up to maintain a place properly. Unable to fund the maintainance at the correct level the place then degrades over time. Anyone remaining as leaseholder may then have a case to sue the freeholders if their property is damaged as a result of the poor maintenance.

There ain't no such thing as a free lunch, and sometimes those hefty maintenance charges really are what it costs to maintain an older property at a correct level of water tightness, air tightness, energy efficiency (don't forget those bottom inspectors!), health and safety, building regulations etc. etc.

And this is worse than having a third party skim off the top and then let the property collapse into disrepair and neglect.

When you buy a house, it is normally a freehold purchase, you are then liable for your own property. In the case of a block of flats you set up a company between you to carry out maintenance. If people insist of buying leasehold properties (and I'll never understand why), then they should at the very least have the ambition to purchase the freehold. Seek legal advice before you do so, but it is never a bad thing to own and will improve saleability of the property and could even put the price up. In a nutshell, buy the Freehold and up the charges to force the BTL out.

The reason the BTL isn't interested is because they are typical of the type of brain dead, short term, moron that infests our society. They wouldn't give a s**t if the property fell down, they only care about the rent. Personally I'd have BTLers strung up by the nearest lampost having dealt with too many of them to be good for my health.

Alternatively, sell the flat, and get out before you lose more money. If there is one thing I have learned about property it is this, "people do not like spending money on maintenance." They will spend money on a patio heater before they fix the roof. It always amazes me that people pay top dollar for badly built, poorly maintained property in this country.

p.s. DO NOT BUY A FLAT

Edited May 5, 2009 by SMAC67

[Arnold J Renter]

Why would you want to keep paying maintenance costs on a depreciating asset that you don't need?

Sell it!!

[grizzly bear]

Mods - feel free to move this if it's in the wrong place.

My wife and I live in Oz, but still own a flat in England. It's a converted mansion approx 100 years old that was turned into 6 flats.

4 of the current flat owners [who all live there] want to purchase the leasehold of the building from the current owner and have asked us if we want to join [6th owner is BTL and wants nothing to do with it].

The main reason for doing this is to avoid the management companies massive inflated costs for maintenance plus their uplift percentage and to have some control over the building.

The cost [our share] will be approx 500 quid for legal fees and some 2000 quid for our 1/5th share of the leasehold via a new management/holding company. The flat is worth maybe 120K in the current market but the mortgage is tiny. We have no plans to sell until the market improves in however many years.

Is their any real advantage in buying the lease for now and in the future ? Any comments gratefully welcomed.

If you don't want to sell until the market improves (ie until prices are higher than they are now) then you will probably be waiting for more than 10 years. If you are waiting for 2007 then maybe you'll be waiting for 25 years - so you should buy the freehold if the lease will be less than 85 years when you might want to sell.

However as house prices drop the cost of buying the freehold drops so maybe wait a bit before you proceed!

[DabHand]

From the experience of a close friend who ended up doing this. Its a quick way to find out that your neighbours are mostly lazy, selfish, mean spirited and cretinous arseholes who are suspicious of everything and grateful for nothing.

Expect problem "shareholders" who don't cough up as a minimum. A lot of this stuff requires conscientious and mature adults who are able to communicate, compromise and negotiate with others as a minimum. The chances of finding an entire block populated as such in our infantalised nation is zero.

Have a nice day!

Edited May 5, 2009 by DabHand

[tim123]

It has ALL already been said in the thread but from personal experience I would say BUY IT BUY IT BUY IT.

We turned down a freehold once, advised by solicitor, as in one of these threads, he said "can mean more work getting money etc off other tenants". Then we got THE FREEHOLDER FROM HELL and it cost us tens of thousands with solicitors trying to get anything done. Visit CARL (Campaing for the Abolition of Residential Leasehold). It is an archaic systems that should be scrapped. Labour before they came to power promised to change it BUT it never happened.

Actually the did. They introduced Commonhold. But is wasn't (and was never intended to be) retrospective.

tim