Advice on selling Freehold please

by Readers Question

10:39 AM, 2nd December 2016
About 2 years ago

Advice on selling Freehold please

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Advice on selling Freehold please

I have a small block of three domestic flats and wish to sell the lease for the building, the ground rent for the three properties pays freehold
£1200 pa, up to 2030
2030 – 2055 = £1800 pa
2055 – 2080 = £2250 pa
with provision for unforeseen extras

Does anyone here know how to market and sell the Freehold and who buys them? The property is located in the North East of England and would appreciate anyone’s input.

This is a first time for me and would like to get a fair price, does anyone have a suggested multiplier to come to a fair figure as a cost

Many thanks

David



Comments

BP Surrey

11:49 AM, 2nd December 2016
About 2 years ago

Freehold ground rents are a very much sought after investment and they don't become available that often. The ground rents payable that you have noted and assuming the leases expire in 2080 suggests the Freehold investment you own is quite valuable. Freehold ground rents are usually sold by auction or you can sell them direct to a company who trades in them or just manages them as an investment. You can find details of commercial property agents in your area on the internet and those companies that purchase freeholds too. You can obtain a rough idea of the value of the Freehold by using an online calculator.

Are you intending to keep the flats on a leasehold basis? Should that be the case, then it might not be a good idea to sell the freehold especially if the leases expire in 2080 as you will need to extend the leases before you are able to sell the flats at the market rate. It is also very unlikely a lender will grant a mortgage on those flats with such a short lease. The final consideration to take into account should you be intending to keep the leasehold interest in the flats is, whoever buys the freehold will be doing so to make money and the leaseholders will be hit with management charges and to extend the lease of a flat with just 64 years to run will be very expensive.

Fraser Maldoom

12:01 PM, 2nd December 2016
About 2 years ago

Good news: there is very likely to be a bit more (bonus) value in this than just a multiplier of the ground rents... From what you say these 3 leases have about 62/63 years left to run so the leaseholders should be wanting to extend their leases and on the face of it "marriage value" will be payable. To find out how much each of them should be thinking of paying for a lease extension you can get a rough guide using a calculator so long as you have an idea what each of the flats is worth with a good long lease (then add them up to give approx value for the freehold). This calculator should guide you (it's easier to use than most!): http://www.capitalleasehold.co.uk/lease-extension-calculator/
If you do want to sell then you will need to get specialist advice from a solicitor familiar with "The Right of First Refusal" - Part 1 of the Landlord and Tenant Act 1987as amended by the Housing Act 1996 - http://www.lease-advice.org/advice-guide/right-of-first-refusal/
You shouldn't sell without taking advice on value from a local surveyor familiar with lease extension values.

Dr Monty Drawbridge

13:06 PM, 2nd December 2016
About 2 years ago

Just to clarify, you seem to suggest that you already own separate freehold and leasehold interests in the same building. Do you hold those titles in separate names?

I have always retained freehold interests when I have sold leasehold flats, but have never kept the leasehold flats and sold the freehold. Obviously I don't know your circumstances but I think you would need to have a very specific / urgent financial reason for making that worthwhile due to the loss of control over the building. It might be preferable to sell one of the flats?

In any case, freehold interests are often sold at auction. If you look at results on national auctions sites you can get an idea of values. We used to get about 17-20 x income (no insurance/maintenance) but I'd guess it is better now.

admin@teacakesyork.co.uk

21:48 PM, 2nd December 2016
About 2 years ago

Reply to the comment left by "Dr Monty Drawbridge " at "02/12/2016 - 13:06":

Thank you so much all for the advice I did not make myself clear, I have sold 2 flats and will be selling the last shortly along with the freehold for the block
at 2080 rent changes to + 150 each 25 years for remainder of the 999 yr leases are you able to post some names of reputable national auction sites here I would like to auction the freehold
Kindest regards

Puzzler

9:50 AM, 3rd December 2016
About 2 years ago

Why don't you offer it to the leaseholders, in fact I think by law you have to (unless you live there)...and it is of most value to them. I know 2020 hindsight is not much help but it would have been better to set it up before you sold any of the flats as it would have added value.

Those ground rents seem very very high, are you sure that does not include the service charges, these would not be income - they are payments on account which the freeholder holds in trust for the leaseholders to pay expenses and maintenance. If not, were these new leases when you sold the flats? If so I am surprised the buyer's solicitors did not raise this.

Sounds like you need specialist advice but there are articles on LEASE and GOV.UK

Dr Monty Drawbridge

11:12 AM, 5th December 2016
About 2 years ago

Assuming the ground rents quoted are combined for all three then they don't sound particularly high. £400/year seems pretty standard for new leases on flats in London anyway.

As for auction sites - I guess it depends to some extent where you are (although location is a lot less important for freehold buyers I think). Barnard Marcus, Savills, Andrews & Robertson all seem to sell a lot of London freeholds.

Fraser Maldoom

12:20 PM, 5th December 2016
About 2 years ago

The confusion in the question goes to show the importance of taking competent professional advice... Assuming that you had created the leases prior to selling the first two flats, you might have considered (with your freeholder hat on) selling the freehold before (with your leaseholder hat on) assigning all three leases thus avoiding the potential complication of Right of first refusal...


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