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Money Mailbag: I’m buying a leasehold flat, should I buy a share of freehold?

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Written by: Paloma Kubiak
20/01/2017
“We’re in the process of buying a leasehold flat in a converted Victorian property and we’ve been offered a chance to buy a share of the freehold. Is it worth it?" Richard, Hertfordshire.

Eddie Goldsmith, founding partner of Goldsmith Williams Solicitors and chairman of the Conveyancing Association (CA), replies…

One in six conveyancing transactions are leasehold and in some parts of the country, for example London, this percentage is even greater. While all flats are leasehold, many houses can also be leasehold.

The principle sitting behind leasehold is that there is a fixed term and on expiry of that term the property reverts back to the owner. As the property is not owned forever (unlike freeholds) the original owner retains an interest in ensuring their “asset” is preserved and that is why all leasehold properties will be subject to a significant number of conditions and requirements on the part of the lessee – maintaining the property in good condition, not causing a nuisance etc.

It is not uncommon for all the lessees in a block of flats to each own a share of the freehold. For many existing leaseholders there is a first refusal right on the sale of the freehold – but the criteria set for the valuation basis can be a number of different options. You’ll need to set up a separate Management Company which holds the freehold and each lessee has a share in that company.

The benefits of owning a share of freehold

The benefit is that all those who are interested in the property because of their leases will have an opportunity to participate and have a say in how the property is managed for the benefit of all the lessees.

In practice this works well but you do hear horror stories about mismanagement of leasehold properties where there is little or no co-operation between the lessees.

On the whole, however, any lessee who is given the chance of taking a share in the freehold would be well advised to do so – it will ensure they will be able to have a say in what services are provided, how the common parts (including the structure/roof) is looked after and generally how the block is maintained.

The associated costs of freehold

Of course, everything comes with a cost and if you are buying a leasehold in a block and there is an offer to the lessees to buy the freehold then you will be expected to pay your share of the cost. There is no hard and fast rule on what this should cost but it is usually agreed by consent of surveyors and if not there is a mechanism to apply to Court for them to determine a price.

Price wise, it’s down to what the value is considered and of course buyer and seller will always have a different view on this – hence the involvement of surveyors – calculating the value of property is not an exact science.

Typically you would expect to pay £2,000+ for a share but this figure could be substantially more (or less ). It is a one-off fee however.

As far as percentages are concerned, a freehold can be a valuable asset and therefore the larger percentage you own, the better. But the underlying principle is that owning the freehold or a share is about control and management rather than a potential share of a future yet defined profit.

The terms of the original lease can’t be changed on purchase by the lessees – it’s only if there needs to be an extension of the lease that the original terms could be varied.

When you come to sell your leasehold property with a share of freehold there is no reason why you wouldn’t be able to sell your share in the freehold to any new buyer. But in reality this is reflected in the price which you ask for your property on a sale.

What to look out for

All conveyancers are used to dealing with leasehold property but you should make sure you read the lease carefully and ask your conveyancer any questions which you don’t understand – they are used to conveyancing whereas you will not be.

As always, it’s good practice to pay for a good service and particularly make sure that you have a comprehensive survey – it is vital you know the condition of the block overall as once you are a tenant you will be responsible to contribute to that cost as well as the cost of your own lease.

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