Should I buy the freehold?
If you own a leasehold flat you don’t actually own the building and common areas. That’s owned by your freeholder or landlord to whom you will need to pay service charges, insurance, ground rent and other charges over which you have little control. In this guide we look at two options to break free from this situation; buying the freehold and obtaining the “right to manage”, and what you need to consider.
What does buying the freehold mean?
Leaseholders of flats have a joint right, with other flat-owners in the block, to buy the freehold of their building. This is known as a right of “freehold enfranchisement” and it means that the leaseholders become their own freeholder.
Buying the freehold isn’t something you can do on your own – you have to get your neighbours involved too. The law allows at least half of the leaseholders to come together to buy the freehold of the block from the freeholder/landlord. So, at the end of the process, the flat-owners would:
- Together own the freehold of the building (often by forming a limited company – this company will be owned and controlled by the flat owners); and
- Separately, each would still have a long lease – but instead of this lease being from the old freeholder it would now be from the new entity that owns the freehold and that you and your neighbours now control
Once you jointly own the freehold, you can collectively set ground rents, shop around for the best insurance and generally be in control of your own destiny. Once you own the freehold you can extend your lease so it is a long lease with the only cost being legal fees.
It can be quite complicated to exercise your right to buy the freehold, so many people simply extend their lease and carry on with their freeholder
Am I eligible to buy the freehold?
Generally, the requirements for a group of leaseholders to buy the freehold are:
- The building needs to contain at least two flats;
- No more than 25% of the freehold building can be used for non-residential purposes (e.g. shops/offices);
- At least two thirds of the flats needs to be owned by leaseholders who own long leases (originally granted for at least 21 years); and
- At least half of the total number of flats in the building must be owned by leaseholders who want to buy a share of the freehold – so you don’t need to have all owners on board but you do need to have at least half of the flat-owners involved. If there are only two flats in the building, then both leaseholders must want to buy the freehold.
The HomeOwners Alliance can provide guidance on buying the freehold. To see how we can help, find out more about becoming a member of the HomeOwners Alliance
Should I buy the freehold?
It’s worth looking into if:
- You have a difficult relationship with your freeholder or would you prefer not to have to deal with a separate, non-resident freeholder
- You are happy to come together with neighbours and work through the process of buying a share of the freehold and managing everything that needs to be done together
- You feel you have been paying over the odds for service charges, ground rent etc
- Your lease has around 85 years or less remaining. At 80 years it gets much more expensive to extend the lease and/or buy the freehold, making your home much less valuable and more difficult to sell. Buying the freehold can add value to a lease, particularly to one under or close to 80 years
- You and the other leaseholders have the money needed to buy the freehold. You will need to have a freehold valuation done to get an idea of the freehold purchase price, and add to that your own and the freeholder’s legal and valuation fees
How much does it cost to buy the freehold?
There are calculators online but none of them are particularly reliable as there are so many variables involved in estimating the cost. Freehold prices vary in the same way property prices vary but certainly the shorter your lease, the pricier your freehold.
In terms of what the costs involve, to buy your share of the freehold you will need to pay your flat’s share of:
- The purchase price for the freehold (the premium)
- The cost of a valuation surveyor to do an accurate freehold valuation so you avoid paying over the odds.
- Legal fees for the leaseholders
- The freeholders legal and valuation fees
- Stamp duty land tax (if the purchase price is over £125,000).
How can I afford to buy the freehold?
If you don’t have the savings to buy the freehold, you may still be able to re-mortgage to cover the cost of buying the freehold – speak to our fee-free mortgage brokers, London & Country, for more information.
Another option: the “Right to Manage”
If you and your neighbours are unable to or do not want to buy the freehold, you may still be able to get the right to manage your block. It allows a “right to manage company” (made up of you and fellow leaseholders) to take over the management of the building themselves or to appoint their own managing agent. But there is no change in ownership of the building – the freeholder still owns it.
As with buying the freehold, the eligibility requirements are the same, you will need legal assistance with the process and you will have to pay the freeholder’s professional fees as well. But there are some differences, too:
- It is much cheaper to exercise the right to manage as you don’t have to pay to buy the freehold;
- You won’t increase the value of your flat by getting the right to manage;
- The freeholder is still involved in the block – the freeholder still needs to be informed of lettings and alterations as required under the lease, to deal with lease extensions and can also be a member of the right to manage company.
Where do I start if I want to buy the freehold or exercise my right to manage?
With either option, you need to get to know your neighbours and gauge their appetite and discuss which option they prefer and could afford.
We are currently preparing a detailed guide on all the steps involved in freehold purchase. Watch this space or become a member of the HomeOwners Alliance to discuss your situation with our friendly HomeHelpline team.
The HomeOwners Alliance can provide guidance on buying the freehold. To see how we can help, find out more about becoming a member of the HomeOwners Alliance.
- Leasehold v Freehold – what’s the difference?
- Should I extend my lease?
- Step by step guide to extending your lease
- Service charges and maintenance companies – problems with your leasehold property
- When do I ask for the freeholder’s consent to my building works?
- Why aren’t my lenders keen on me owning a long lease and the whole freehold?