Considering buying a share of freehold?

Posted by Coles Miller on 9th March 2020 -

 

Planning to buy a share of the freehold of your block of flats? Be very careful when it comes to telling the freeholder/landlord – you may be giving them an opportunity to force up the price!

You Want To Get Rid Of The Landlord…

Here’s the scenario: you don’t get along with your landlord. You don’t like having to pay them ground rent. You don’t like their management company. You don’t like the tradesman they hire to do repairs.

You can’t wait to stop paying your landlord ground rent…because you’re going to buy the freehold of the block. You can’t wait to tell your landlord. Think how satisfying that’ll be!

Just one problem. Telling the landlord might feel like sweet revenge for the leaseholders but it can backfire horribly.

That’s because it gives the landlord an incentive to react…and potentially find a way of demonstrating further value for the freehold. So you and your fellow leaseholders could each end up paying more for your share of the freehold.

What Can Go Wrong When You Buy The Freehold…Example 1

This is a true story. A group of leaseholders wanted to buy the freehold of their block because they were unhappy with the management of the building and they were suffering with the usual problems associated with poor lease length.

They made the potentially expensive mistake of telling the landlord that they were instructing a solicitor to serve a Section 13 Notice to buy the freehold (exercising their rights under the ‘collective enfranchisement’ process).

The landlord used this advance warning to their advantage. They granted a lease over the loft and roof space. They granted that lease to a connected company of theirs. And this lease for the loft space contained a rising ground rent…

This meant the leaseholders were faced with deciding whether to incur the cost of purchasing the new lease for the roof space. 

Now ordinarily, the roof space lease may not have much inherent value. But the freeholder was able to claim that they should be compensated for a loss of ground rent income – and the third party company was able to claim that they should be compensated for the loss of the loft and roof space lease.

So unfortunately the leaseholders had to entertain further arguments from the freeholder surrounding the overall cost of the freehold…simply because they had unwittingly tipped them off.

What the landlord did may leave a sour taste for the leaseholders but it was perfectly lawful.

What Can Go Wrong With A Freehold Purchase…Example 2

This is another true story – along a similar vein. Once again, the leaseholders told the landlord they wanted to buy the freehold…before they had served the Section 13 Notice. And once again the landlord reacted swiftly…

The freeholder used the opportunity to grant commercial leases to telecommunications companies – allowing them to install phone masts on top of the block. This increased the potential compensation owed to the landlord for the freehold.

So yet again the price when up. And this time the price was now so high that the leaseholders could no longer afford to continue with the freehold purchase.

It was an undesirable outcome for them:

• their attempt to buy the freehold was put on hold
• the cost of any future attempts could be much higher
• the landlord remained in control of the block
• the leaseholders were left with telecom masts on the top of the building.

How To Avoid Problems Like These

The collective enfranchisement process is by its very nature ‘collective’. It means asking all the leaseholders whether they want to proceed (and gaining the support of at least 50% of them).

So complete secrecy should be considered at all times. Tell your fellow leaseholders what can go wrong. Show them this blog post. Explain to them that there could be real financial consequences if they tell the freeholder about their intentions.

It is absolutely vital to get expert legal advice before proceeding – as leasehold specialists we can run your freehold purchase the right way and help to keep your costs down. 

Find Out More About Buying The Freehold

For more information, please contact residential leasehold solicitor Nick Leedham at Coles Miller’s Bournemouth office, 01202 355697.