Question: Our landlord wants to sell the freehold to our building – a house recently converted into four neighbouring flats – to us all... for £20,000. As flat-owners, each of us has a lease of 125 years for each flat and enjoys low service charges of £250 a year. However, the landlord (a development company) has said he'll sell the freehold to somebody else if we don't want it. Now we're worried a new landlord might impose much higher service charges. Should we buy it, or is it a rip-off? Please help. Tina Jones, Guildford
Answer: Freehold usually trumps leasehold for one major reason: financial control.
Where the former owns the building and land outright, the latter only actually purchases the right to live in the property for a set time – usually for somewhere between 90 and 125 years.
Leaseholders must also typically pay ground rent and service charges that can tally up to thousands of pounds a year.
Buying the freehold – or "share of freehold" if you and your neighbours go ahead – would spare you such expense, as well as the heinous cost of "renewing" your lease once it runs down to about 80 years.
Instead, to maintain your building you can simply set up a small "not-for-profit" management company that just looks after the running of your building. It won't cost you very much to do it, either – after hiring a solicitor to formally set up the company (roughly £400), you've just the annual Companies House register fee (£15 if done online) to pay. Agree to a business bank account for the freehold company ... and away you go.
And if repairs are needed, you can choose who to use and better control the costs.
For these reasons, buying the freehold may increase its value – by as much as 10 per cent according to estate agents – and make it easier to sell your home in the future.
"Freeholders have more control over the management of their homes," says a spokesman for the housing charity Shelter.
However, it is hard to tell if the £20,000 price tag is fair, says Gavin Brazg of property advice website Theadvisory.co.uk. But you may have a strong hand to negotiate lower, he adds, since your long leaseholds won't attract many other buyers.
"With such a long time left on the lease, the freehold is likely to be of little value to many other buyers – the real reason to purchase is for lease length "extensions" so it may be difficult for the owner to get that price from a third party."
Because you've all got 125-year leases, you won't need to extend for decades – leaving little appetite for buyers who could normally expect at least £16,000 for a single 85-year extension on a £180,000 flat sporting a 68-year lease.
So while negotiating is a gamble – the landlord could find somebody else intent on simply hiking charges – the likely lack of ready buyers could play into your hands.
And don't worry if it falls through and the landlord does eventually sell to a difficult operator who employs a poor, and expensive, managing agent for your flats. New legislation allows leaseholders to club together and, without needing landlord permission, boot out the existing agent via an independent leasehold valuation tribunal.
You'd also have a right to see a full breakdown of all costs if the property manager bills you for work costing more than £250.
For more information, contact the Leasehold Advisory Service at www.lease-advice.org.uk.Reuse content