Should I buy the freehold to my flat or should I wait for new rules that may make it cheaper?

Published by Naomi Rennard on 07 August 2018.
Last updated on 07 August 2018

Q

I read Jasmine Birtles’ column ‘An Unwelcome New Lease of Life’ in Moneywise’s April edition.  

I have been given the opportunity to purchase the freehold of my current leasehold apartment, which will cost several thousands of pounds. Do you think that leasehold legislation may change and therefore to buy my freehold would be money spent that I could use elsewhere?

From:
IH, Reigate

A

Naomi Rennard, head of membership at HomeOwners Alliance, says: Buying the freehold of an apartment means, in reality, purchasing the freehold of the whole building alongside some, if not all, of your fellow flat owners (leaseholders).

I assume that some of your neighbours have started looking into the process and have been in touch with you to see if you are interested. This is because, as the law currently stands, at least half of leaseholders must be willing to buy the freehold (or if there are only two flats in the building, then both leaseholders must be keen to do so). 

This does have the advantage, however, that the price of the freehold will be split between the participating leaseholders.

After buying the freehold, you will still keep your leasehold interest in your flat. But, on top of that, you will have a share in the entity (normally a limited company set up by you and your neighbours) that owns the freehold of the whole building.

With the subject of leasehold reform in the press quite a bit at the moment, I can understand why you might be reluctant to start the process now given that changes are being proposed.

The Law Commission, for example, recently responded to calls from the government to find a solution to the leasehold houses problem with a series of suggestions that would certainly simplify the sector and make things more transparent for leaseholders.

One proposal involves reforming the way the price for buying the freehold is calculated – for flats as well as houses – by implementing a straightforward formula. Examples given included formulae based on 10 times the ground rent of the property or 10% of the market value. However, there is likely to be strong opposition to these proposals from property-owning companies. 

The Law Commission is consulting further on leasehold reform in the autumn. It won’t publish the findings of its consultation until, at the earliest, late this year and, even then, there will be a lot that has to happen before any new legislation is passed.

Whether or not you and your neighbours wait or press ahead with the purchase, therefore, will depend very much on your circumstances.

If you have close to 80 or less years left on your lease (which means that it is less marketable) and want to sell soon, then you may consider joining with your neighbours in buying the freehold sooner rather than later. As an alternative (and without involving your neighbours), you could also consider extending your lease – as long as you have owned the flat for at least two years.  

On the other hand, you say that the current freeholder is suggesting a sum of several thousands of pounds for the freehold. If the new formulae outlined above were to be introduced, would that make your freehold a lot cheaper?

If you are not looking to move soon and have sufficient time (85 years-plus) remaining on your lease, then we would suggest hanging tight. A change is certainly coming – we just don’t know when.

You can find out more about buying your freehold with HomeOwners Alliance’s free guide to buying a freehold.

This article was written in response to a reader’s question. If you have a financial or work/career question that has left you scratching your head ask our panel of experts who will aim to shine some light on the matter.

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