BUYING YOUR FREEHOLD SHOwmEtHEmONEY


Evelyn Levisohndoes themaths


There are 10 flats in a block, eachworth approximately £250,000 with alonglease, paying a ground rent of £100 per annum, and with all the leases having 90 years remaining. Each flatwould expecttopayapremium of around £4,600 to buy their share of the freehold. Therefore the total payable for the freeholdwould be approximately £46,000.


Ask any landlord: managingaleasehold building can be a challenge


estatemanagementisfrequentlycentral to maintaining value. Anotherissuethatrankles with landlordsisthe compensation paid to themwhich,many argue, seldomreflectsthe true market value of the block. In abuoyant property market, an understandablesense of injustice prevails.


yoUrLAndLord Sowhat is thebestwaytoapproach your landlord if youwish to buy your freehold? You canalways ask your landlord if hewill deal with youonavoluntarybasis,outside of the legislation.However, thereisnocertainty with this approach andmatters canbecome drawnout.Bewareofthe landlordwhoinvolves youinlengthy discussion;set yourself a clear timetable for concluding negotiations. Makinga formal claimhas the benefit of freezingthevaluation date at thedateonwhich notice is given, protectingyourpurchase frommarket fluctuations in property price. Also, the legislationprovides a framework fornegotiations.Thelandlord has astatutory duty to dealwithmatters or risk losinghis investment on termsdictatedbythe tenant. However, aswith somany transactions, it is aquestionofcommunication andagreement betweenthe parties.


refUSe To SeLL? Provided theparticipating flatownerssatisfy thestatutory testsfor acquiringthe freehold of their building, the answer is no.Insuch circumstances,alandlord is obligedtosellata price and upon terms set out in the legislation.


negoTiATionS Communication is key. Ensuring youappoint the right professional advisers to guide you through the process is vital, as is giving clear andswift instructionswhen required.The statutoryprocessisfulloftimelimitsand if you don’t stick to the timetable it can have devastatingconsequences.Collectiveclaims do take timeandrequire organisation and


Flat Living Winter 2011 AvoidingLengThy cAnmyLAndLord APProAching TopTipsforbuyingyourfreehold


nEstablishclear organisationand leadershipamongresidents nKeepeveryoneinformedonwhat is goingon nBeclearastowhyyouwanttobuythe freeholdandbecomeyourownlandlord nUnderstandyour objectivesfor the building nEstablishafightingfund; itshows commitment nRetainsolicitors, valuersand managingagentswhohaveexperienceof the process nBerealistic in yourexpectationsand timescale


patience on the part of all parties. Be realistic with your expectations too. Acquiringthe freeholdmaybealiberatingexperiencein someinstances butitinvolvesalong-term commitmenttoyourbuilding with significant responsibilities.Inall cases,adoptingaspirit of compromiseand keeping calm will seeyou through.●


annaFavre Solicitor, Pemberton GreenishLLP Anna Favrespecialises in theareas of leasehold enfranchisementand residential landlord andtenant, acting forcentral London landed estates, companiesand privateindividuals


Thepremiumis calculatedas follows: Loss of thegroundrentwhichis £100 x 90 years, capitalised at7%= £1,425 PLUS Theloss of thefreeholder’s reversion, which is taken to be deferred for 90 years at 5%= £3,129 Total:£4,554


Matters becomeslightlymore complex if, in thesameblock, each flathadanunexpired leasetermof 70 years. In this case, the calculationincludes‘marriagevalue’ for the participatingflatsand‘hopevalue’ for the non-participants. If fiveout of 10 flatswere confirmed asparticipating, theywouldeach payapremiumof approximately £16,900while thefivenon-participatingflats’ sharewould beworth£11,100.Thetotalpayablefor the freehold in this casewouldbe circa£140,000. With 70 years remainingonthe leases, the premiumis calculated as follows for participants: Loss of thegroundrentwhich is £100 x 70 years, capitalised at7%= £1,416 PLUS Theloss of thefreeholder’s reversion, which is taken to be deferred for 70 years at 5%= £8,299 PLUS Themarriagevalue,which is the difference between the lease’s current value (£228,500) andits future ‘freehold’value(£252,500–a 1% uplift of the‘extended leasevalue’ of £250,000)whichis£14,285.Half of that is payable inmarriage value = £7,143 Total: £16,858


For non-participating flatswhere hope value is payable instead ofmarriage value, that is taken to be 20%of the50%, or 10%of the entire difference. So 10%of £14,285 = £1,429


Thismakes the sum


Loss of reversion£8,299+ loss of groundrent£7,143+ hopevalue £1,429 =£11,144


As a general rule themore complex, thehigherthe premium,andmore reason toemploy expert valuation surveyorswho will use their skills to agreeapremiumat as lowalevel as possible. Keep in mind that the Landlord willemploy hisownsurveyor to seek the opposite outcome.


EvelynLevisohnworksfor chartered surveyorsmyleasehold. www.myleasehold.co.uk


57


Jargon Buster


WhatisMarriagEvaLuE?This


is thedifferencebetweenwhatyourflat is worthonceyouhaveacquiredthefreehold lessthevalueofyourexistinginterest plus


thevalueofthefreeholder’sexistinginterest. Thedifferenceissplit50/50between


theflatownerandthefreeholder.As theleasesgetshorterthecost to buythefreeholdcanriseand rise,unlesspropertyvalues fall.Marriagevalueisonly payabletothefreeholder oncealeasegoes below80years unexpired.


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