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Freehold Purchase for Freeholders

Background
Most landlords are aware that freehold reversionary interests are a valuable investment, but few in our experience are aware of the impact of statutory legislation and the associated valuation procedures, that must be considered, if the leaseholders serve formal notice to acquire the freehold.

It is fair to say that many landlords have no interest in selling their freeholds voluntarily and do not welcome enquiries from leaseholders. However since 1993 the law has changed. Subject to certain qualifying criteria, long leaseholders can ultimately force a landlord to sell the freehold. Consequently whenever a query is received it is imperative that sound professional advice is obtained.



Qualification

The rules, much to the annoyance of some landlords have been adjusted to help more leaseholders become joint owners of their freehold.

In brief at least 50% of the long leaseholders must be in agreement to acquire the freehold.  In addition at least two-thirds of the flats must be sold on long leases. These are the two main considerations, although there are other factors that may need to be taken into account. 

Please contact us so that we can assess your tenants’ statutory rights.



Valuation Matters

The valuation issues are fairly complex, but briefly the landlord (freeholder) is entitled to compensation for:

  • Loss of the ground rent income, which is payable under the terms of the lease. 
  • Loss of the right to the reversionary interest at the expiration of the lease. That is to say the right to receive the flat back at the end of the original lease.
  • Where the lease has less than 80 years to run, under current legislation, the landlord is entitled to a 50% share of any additional value (marriage value), which results from the merging of the new and old leases. This is more precisely the difference between the freehold value of the flat and the combined value of the landlords and leaseholders existing interests prior to the grant of the lease extension. 

There is an additional head of claim entitled “other losses”.   Generally most claims will not provide for any compensation to be paid under this heading. However there may be instances where for example the landlord has retained part of property, for example the roof space, or an outbuilding, or maybe he has retained a flat within the development.  Any such issues and others will need to be considered.



I have received an enquiry to sell a freehold!  What action do I take?
Whether you welcome your leaseholder(s) enquiry or not, doing nothing is not an option. Some landlords have found to their considerable cost, that ignoring formal Notices has resulted in their tenants acquiring the freehold at a lesser sum than it’s true value.

In the majority of cases, we will be able to provide you with comprehensive valuation advice at no direct cost to yourself. This is because the legislation provides for the leaseholders to meet the professional costs of the landlord, following service of a Section 13 Notice of Claim under the Leasehold Reform, Housing & Urban Development Act 1993 (as amended).   Alternatively if a formal Notice of Claim has not been served it will be the usual to put in place an undertaking to ensure that your costs are met by the leaseholders making the enquiry.

Our geographical area of coverage extends throughout central and outer London and the entire Home Counties.



Contact
For a free informal discussion please call Mike Stapleton FRICS on 01702 562072 between 9am and 7pm, Monday to Friday. Alternatively if you prefer please click here to direct your query to us by e-mail.

 

 
ALEP

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