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3 December 2007

A simple guide to buying the freehold of a block of flats

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by Brian Turner

Today we welcome Simon Garfinkel MRICS, Director of Currell Chartered Surveyors, to provide some helpful tips for landlords and those seeking to get involved in the buy-to-let market:

Ten Points You always Wanted to know about collectively enfranchising a block of flats

1. Your property must be in a building that is a self contained block of at least two flats, which can either be a converted building or a purpose built one.

There is no right to collectively enfranchise where the building is four or fewer converted flats, that has been in the same ownership since before the conversion and either the freeholder, or their family, has lived there for the last 12 months.

2. The building must have no more than 25% of the internal floor area for non-residential use (apart from the common parts such as stairs).

3. 2/3 of the flats must be let to qualifying tenants (a qualifying tenant is one who holds the flat under a long lease, namely one which is for an original term of more than 21 years).

4. The minimum number of the qualifying tenants in the building that need to participate in the freehold purchase must equal at least 50% of the total number of flats. (Where there are only two flats in the building, both must agree to buy.)

5. Buying the freehold should add value to an individual flat, although the actual amount will vary considerably.

It is important to receive professional advice since the price will depend on many factors such as the improvements carried out since the grant of the lease (their affect being disregarded), the length of the unexpired term, other lease terms as well as the value of the property itself.

The general rule is that the longer the lease, the cheaper it will be to buy the freehold. In addition it becomes a lot more expensive when there is less than 80 years unexpired on the lease since marriage* value is payable.

The freehold may contain expensive elements which the leaseholders can’t afford, such as land or flats subject to Assured Shorthold and Rent Act tenancies. In these circumstances the landlord may take a ‘lease back’ of part of the property, which would reduce the price.

6. Buying the freehold gives you more control over the management and you can then grant yourself a long lease, but it means you have to see eye to eye with neighbours on how you manage the building, although appointing a managing agent would help.

If your sole motive is to take over the management, then this can be done through other legislation in place, known as Right to Manage and the landlord does not have to be in default to go down this route and no compensation is payable.

7. If there are development opportunities, the freeholder may be able to profit from these, subject to obtaining statutory consents and not interfering with the rights of the lessees.

(If you own the flat, you still have a lease, as well an interest in the company that owns the freehold. As such you are still bound by the terms of the lease which, for example, may stop you from digging out a basement or extending into the attic.)

8. Enfranchising your freehold will involve surveyor’s valuation fees and solicitor’s legal fees, plus the freeholder’s reasonable costs for the same.

9. Assuming the matter does not end up in the Leashold Valuation Tribunal the process of enfranchising your freehold could take between three and 12 months, depending on how efficient all the parties are.

10. It is essential all those considering buying their freeholds take professional advice specific to their properties.

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