Should you buy the freehold on your property?

Published by Donna Ferguson on 01 August 2013.
Last updated on 02 August 2013

Key in the door
Buying your freehold should be a no-brainer but it's a process that can be fraught with difficulties. Moneywise explains how to avoid the pitfalls.
When I decided to buy the freehold of my flat rather than renewing its 73-year lease, I thought I had all the power.
Even though, in the eyes of the law, I was only leasing the property (albeit for 73 years), I could force the freeholder to sell me the freehold at a reasonable price, determined by a set legal formula. All I had to do was convince the majority of my fellow leaseholders in the building to chip in, and since it would add significant value to our properties, it struck me as a no-brainer.
How naïve I was. A year of heartache later, we had successfully forced the freeholder to sell up at a good price, but it had cost us £10,000 each in legal fees – and left me angry about the time I had wasted seeing through this apparently straightforward legal process. 
My freeholder also did his best to increase the price by making outrageous claims about the value of my property and the demise of my lease, which took time and money to refute. Plus, because leaseholders are responsible for paying the freeholder's valuation fee, he valued my property himself (without having set foot in it) and then tried to charge us nearly £3,000 for his efforts.
Ultimately, if you have a problem you can take the matter to the Leasehold Valuation Tribunal (LVT) to get a fair decision. But it takes months to get a court date. During this period, you are responsible for both your own and the freeholder's reasonable valuation and legal fees, except for work directly relating to the LVT.
The LVT also enforces a period of negotiation when both parties are expected to attempt to resolve the matter amicably. Yet at no point are freeholders forced to take advice from reputable specialist lawyers, which can result in unnecessary delays and increased costs on both sides.
Unfortunately, if this does happen, the LVT only has the power to penalise freeholders up to £500 – a paltry sum compared to the tens of thousands of pounds of legal fees that can be incurred in such cases. 

How to save time and money

If you suspect your freeholder will be difficult to deal with, what can you do to keep costs low and ensure the process still goes smoothly from the start? I asked a specialist freehold enfranchisement lawyer and a surveyor for their tips.
1. Prepare a Participation Agreement with the other leaseholders before you start the process. "A Participation Agreement will regulate the relationship between tenants and set out each tenant's contribution to both premium and costs," says Stephen Pomeranc, a solicitor at Pearlmans Solicitors. "It also ensures the other tenants don't change their mind about their commitment half way through the process," explains Andrew Cohen of Talbots Surveyors.
2. Check the demise of your lease (the parts of the building you legally own). "Figure out whether the loft and the cellar of the building are demised in your leases or elsewhere," advises Cohen. Be careful to include a proposed purchase price for any leasehold interest the freeholder has in the property or any ‘appurtenant' (adjoining or relevant) land.
3. Make a realistic offer when you serve the freeholder with a Section 13 Notice stating your intention to buy the freehold. "If your initial offer is too low, the freeholder can argue it wasn't made in good faith and get the Notice invalidated," Cohen explains.
4. Make sure all the dates on the Notice are correct and that plans showing the premises are included, along with all your full names and addresses. "If you get the Notice wrong, you are back to square one, plus you could be lumbered with unnecessary costs," says Cohen.
5. Be prepared for your freeholder to argue that there is development potential in order to increase the price. "Landlords often quote inflated development values," says Pomeranc. Don't be deterred - just make sure you instruct experienced surveyors and solicitors so that you can take the matter to the LVT and win.
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