Buying the freehold – last minute show stopper

by Readers Question

10:45 AM, 28th April 2015
About 4 years ago

Buying the freehold – last minute show stopper

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Buying the freehold – last minute show stopper

We own a leasehold flat in a block of 5. Our Freeholder has always been absent and a year ago all flat owners started the process to purchase the freehold. We managed to prove to the Crown that attempts to establish a freeholder have proven unsuccessful and we were given the go ahead to apply for the vesting order. We appointed a Surveyor to value the freehold and were advised about £50k. At this point 3 of the 4 owners wanted to proceed but the 4th owner dropped out (they own 2 flats). Buying the freehold - last minute show stopper

Our application was held at a tribunal and we were advised that the valuation was inaccurate and they value the freehold at £100k!!! We are now looking at funding either £33k, £50k or £100k ourselves dependent on the remaining owners wish to proceed.

My questions are:

How on earth can the Tribunal value it at £100k, this is punitive for leaseholders to purchase and seems to be greedy, as the cash goes to the Crown?!

How did the valuer get it soooo wrong, and I am loathed to pay his bill for poor information.

Who can I approach to get the funding of this freehold?

Many thanks

Emma



Comments

Mark Alexander

10:50 AM, 28th April 2015
About 4 years ago

Hi Emma

Some questions if I may please?

What is the ground rent on each of the 5 flats?

How many years remaining on each of the leases?

What is the basis of rents escalating according to the leases?

Have you employed a solicitor to act for you?

With regards to funding, to my knowledge freehold interests are not financable as a stand alone project. Each leaseholder would have to raise the money individually, either from cash resources or other forms of borrowing such as a remortgage on their flat. Obviously they would need to have a good credit score, income and substantial equity in their flats to achieve the latter.
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Emma Bradford

11:36 AM, 28th April 2015
About 4 years ago

Reply to the comment left by "Mark Alexander" at "28/04/2015 - 10:50":

Hi Mark
There is no ground rent as the freeholder was absent/lost so no-one to pay rent to.
Years remaining under 50 yrs
Not sure, I would need to look at the lease again, we haven't looked as this as we haven't been paying it.
Yes, we have a solicitor who is acting for us. Costs incurred already in the £000's.
Our leasehold lender is Mortgage Express, so no longer lending. We have a top credit score and there is a 80% LTV. We will have a cash deposit of £30k, so will need £70k loan from .........somewhere!

Mark Alexander

11:47 AM, 28th April 2015
About 4 years ago

Reply to the comment left by "Emma Bradford" at "28/04/2015 - 11:36":

Hi Emma

Whether the freeholder is absent or not you must have had a lease when you purchased the property, otherwise you wouldn't have been granted a mortgage.

Your lease will confirm the amount of ground rent and basis for increases. This is part of the basis of valuation, hence my question.

With regards to financing, I think it's a none runner and your solicitor should have told you that before running up bills of that level.
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AA Properties Wales

14:00 PM, 28th April 2015
About 4 years ago

On what basis did the tribunal say 100K?? How can they establish a value without having the numbers for service charges or ground rent? Is Tony out there? to.help??

Tony Lilleystone

18:46 PM, 28th April 2015
About 4 years ago

Hi Emma

I can't claim to be an expert in this field as while I have dealt with lease extension cases I haven't handled a freehold enfranchisement case from a missing landlord. However I have occasionally investigated the law in order to give initial advice about the process. I understand that when the landlord is missing and the county court has agreed that a vesting order can be made the actual amount payable has to be determined by the Tribunal. If you then proceed the money is then paid into court so that the vesting order can be completed.

But I am very surprised that your surveyor's valuation and the Tribunal's were so different. The basis of such valuations is laid down in the legislation so while there are always likely to be some differences between individual valuers it should not as wide as in your case. The Tribunal should apply exactly the same rules in a missing landlord case as they would in a case where the landlord is known but there is a dispute as to the amount payable.

So I am wondering whether you chose a surveyor who had dealt with similar cases and was familiar with the valuation rules, as well as being familiar with the local property market for your property.

Was the £50k figure the only one you were given or did you get best and worse case figures to give you some idea of the top price you might have to pay? Also has your surveyor commented on the Tribunal's valuation and if so what is his or her view as to the reason for the wide difference – for instance, is there any basis for arguing that the Tribunal has got it wrong?

I note that your leases have less than 50 years to run, which is comparatively short. Did your surveyor properly take this into account? The length of the leases can make a very considerable difference to the valuation of the freehold. (The Leasehold Advisory Service website shows an example contrasting the valuation of the freehold of a block where leases have 68 years to run with the same property where the leases only have 35 years remaining – £82,513 in the first case against £553,682 in the second.)

Even if there is no room for appealing the Tribunal's decision it must surely be worthwhile trying to buy the freehold if you can raise the money. Your leases are getting shorter and are losing value so if the three who are still interested can raise the cash you can then extend your own leases – and it does occur to me that the owner who does not want to participate might want to extend his leases, for which you could charge a substantial premium.

The alternative would be to go for individual lease extensions, but then you are still going to be faced with the rigmarole of applying to the court (again!) and then going back to the Tribunal to determine the amount of the premium – all of which is going to take time and cost yet more money.

Lucy McKenna

9:02 AM, 2nd May 2015
About 4 years ago

I know quite a bit about lease extension purchase but little about freehold purchase. Just wondered if this may help with your freehold purchase. I understand there are quite a few white knights available.
Whiteknights
A potential stumbling block for flat owners wishing to buy their freehold, either by collective enfranchisement or Right of First Refusal, is the extra finance needed to cover the non-participating leaseholders. However, it is possible for a “whiteknight” to provide the extra finance to enable the purchase to proceed and effectively become the share freeholder for those non-participating leaseholders.

Lucy McKenna

16:58 PM, 3rd May 2015
About 4 years ago

Forgot to say these "White Knights" although they sound rather sinister are well respected institutions that have a lot of money they want to "park" somewhere, I understand the Welcome Trust is an example and they just sit quietly by. There is an upmarket estate agent that specialises in the field of arranging freeholds, I can give you their name if you like. Best of luck.

Chuong Dang

9:51 AM, 10th September 2015
About 3 years ago

Hi LS - I am looking for a "White Knight" to help us with our enfranchisment- we are a block of over 40 flats. Can you help in any way?

Chuong Dang

9:54 AM, 10th September 2015
About 3 years ago

Reply to the comment left by "LS " at "03/05/2015 - 16:58":

Hi LS - I am looking for a "White Knight" to help us with our enfranchisment- we are a block of over 40 flats. Can you help in any way?

Jon Pipllman

11:02 AM, 10th September 2015
About 3 years ago

What happens if the leases expire and the landlord is absent / untraceable?

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