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Frequently Asked Questions
What is the difference between Freehold and Leasehold?
A freehold is when a person or a collective owns a property outright and are responsible for maintaining both the land and the property. There are many benefits to a freehold property. You never have to worry about your lease running out, because you actually own the property and you will no longer be required to pay ground rent. Lenders are more likely to view freeholds more positively. Currently if your ground rent is more than £250 a year you are actually deemed a tenant and the freeholder has the right to repossess your property if you fall behind on payments. As a leaseholder you also only own the property for the length of the lease that the freeholder has granted you. When the lease ends, the ownership of the entire property goes back to the freeholder unless you can extend it. Extending at that point in time is significantly more expensive as you have to add what's known as "marriage value", which is applied when your lease is 80 years or less.
Who is our Freeholder?
Our freeholder is Emerald Ground Rent Trustees Limited. Living City Asset Management Ltd act as their Agent and collect the ground rent.
Why would leaseholders want to buy the freehold of their block of flats?
Buying the freehold removes ground rent and by doing so, makes our properties easier to sell. Some valuers are currently valuing our properties at £0, due to the ground rent clause. Buying the freehold also gives us greater control over the management of the building, removes any restrictions and limitations in the lease and can potentially increase the value of individual properties.
What is an Onerous Ground Rent Clause?
An Onerous Ground Rent Clause is a clause within a lease which allows the Freeholder to increase the ground rent considerably over time, often doubling every few years. This can make the property unaffordable, can cause issues when remortgaging and make it difficult to sell the property.
What is Collective Enfranchisement?
Collective enfranchisement is a legal term for the right of leaseholders to jointly acquire the freehold of a building, or part of a building, in which they hold a residential leasehold interest. The freehold will be purchased by a limited company, of which those of us enfranchising would become "enfranchised members". We need 50% of leaseholders to agree to do this. Those who do not enfranchise would still need to pay their ground rent, but the income would go to the enfranchised members.
Are there any challenges or risks associated with buying the freehold?
Challenges may include initial costs, complexities in the legal process, disagreements among leaseholders, and potential opposition from the current freeholder. It's important to seek professional advice and work together as a cohesive group. Our GRWG will also function as the contact point with our nominated lawyers, ensuring that we have a collective voice.
How is the price determined for buying the freehold?
The price is determined based on various factors including the length of leases, ground rent, and any other relevant considerations. It is often negotiated between the leaseholders and the freeholder or determined by a tribunal if an agreement cannot be reached.
What is a Deed of Variation and can we use it?
A deed of variation is where you negotiate a change in the terms of your lease. This is voluntary - the freeholder has to willingly agree, as opposed to a lease extension or collective enfranchisement. Some leaseholders have tried to obtain a deed of variation when selling, but the freeholder has refused, leading to sales falling through. We feel this is unlikely to be successful. However, it is important to note that all of our leases increase the ground rent every five years in line with the RPI. The RPI is set to be demised by the government by 2030, and our lease doesn't stipulate a replacement. We would need to negotiate this with the freeholder and this could potentially be used this as a bargaining chip.
What is a tribunal?
A tribunal is a judicial body. Either a lease extension OR collective enfranchisement can go to tribunal, if both parties cannot agree on the value of the freehold. Tribunals are costly and each side pays its own costs, so it's not in either party's interest to get to this stage and the freeholder would have to demonstrate solid reasoning for why they feel our valuation, even after negotiating, isn't adequate.
Didn't we get an offer to buy the freehold?
When the building was first handed over, we did receive a letter stating that the freehold was up for sale. Leaseholders must always be offered the freehold first when it is put on the market. However, the timing and manner in which this was done is a common tactic amongst freeholders, as leaseholders are not organised and are not in a position to act. At the time, the valuation was £1.4m (c.12k per flat). Early discussions with a Valuer have indicated that we could try to negotiate this down, arguing that the freehold is not as valuable as it was, given the changed legislatory environment. We'd have to see when we get to that stage.
Can leaseholders still sell their individual flats if they own the freehold?
Yes, owning the freehold does not restrict leaseholders from selling their individual flats. In our case, we feel that owning the freehold would increase our likelihood of selling.
How long does it take to purchase the freehold?
This depends on how cooperative the Freeholder is. Typically we can expect the process to take 12 months once we have agreement from the required number of Leaseholders.