Sarah is here to help house buyers and sellers get to grips with the conveyancing process. This month, she explains how and why you might wish to buy a property’s freehold…
There has been a lot of press recently about leasehold properties and the potential mis-selling of freeholds. This month, I thought I’d take a closer look at your rights as a leaseholder and what you should do if you wish to purchase the freehold to your property.
I am buying a new build leasehold property. Should I ask to purchase the freehold?
On February 28th, the Competitions and Markets Authority (CMA) updated its report on leaseholds. It has found evidence of potential mis-selling and unfair contracts in the new build sector and is launching enforcement action against housing developers it feels are misleading prospective buyers.
If you are purchasing a leasehold property, you need to consider the cost of the ground rent and the terms of the lease, i.e. does it run for more than 100 years? In my experience, 250, 300 and even 800-year tenures are not uncommon.
The majority of leases have a very low ground rent, usually under £150 per year. If this is the case, you will have no issues during your lifetime and there is no need to be concerned about living in a leasehold property – there will be no impact on its resale value. However, following all the negative press, I understand some buyers do wish to consider buying the freehold for total peace of mind.
How do I go about buying my property’s freehold?
Before you begin the process, you need to be aware some freeholders can be reluctant to sell or will drive a hard bargain, making it both time consuming and expensive.
Once you have been the registered owner of a property for more than two years, you have the right to buy your freehold at a fair price. This is known as enfranchisement. There are two ways it can be done, either formally or informally and there are pros and cons of both.
It is often the case that the freeholder will be willing to sell, but if they are reluctant or refuse to be reasonable, you may need to invoke your statutory rights. To submit a formal application, you will potentially need to instruct a solicitor or legal expert to ensure the correct notices are served, fees paid and everything is dealt with in a given timescale.
Once notice has been served, it can be transferred to the buyer of your property, if purchasing the freehold is a condition of the sale. It is important to note that from this point, you are responsible for paying the reasonable conveyancing and valuation fees of the freeholder and any intermediary landlord involved.
Serving notice will not automatically result in the freeholder putting forward a price and if negotiations stall, you may have to make an application to the first-tier tribunal to achieve a resolution. Unfortunately, this process can take between four and six months.
How much should it cost to buy a freehold?
There is no scientific formula for determining the price. The legislation in place – the leasehold format 1967 – requires the leaseholder to adequately compensate the freeholder, with a fair price based as closely as is practical on the open market value.
If you and the freeholder cannot agree a price, an application can be made to try and determine a compromise. The calculation of the figure is complex, but your solicitor can put you in touch with a surveyor who specialises in this type of valuation.
You may also find your property is held on an ‘Under Lease’ and if this is the case, you will need to purchase both the freehold and leasehold titles in order to own the freehold outright. If the freeholder is unknown, there is a procedure in place to assist with the purchase.
Is there any alternative to buying the freehold?
Yes. Legislation is in place allowing you to extend your lease by 50 years. There is no premium to pay, but you are still liable for the landlord’s legal and valuation fees. These tend to vary and can be substantially more than the cost of buying the freehold.
If you are concerned about the length of your lease or any of its terms, consider your options carefully and if you have any further questions about buying a freehold, don’t hesitate to contact me.
If you have a question about moving home, our residential property expert, Sarah Gaunt, would love to hear from you. Email: firstname.lastname@example.org