When buying the freehold of a residential block (often referred to as leasehold, freehold or collective enfranchisement) one of the questions which is asked most frequently by participating leaseholders is about how much everything is going to cost.
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Buying your freehold – it’s not just the purchase price you need to consider
The premium you need to pay to buy the freehold is not the only expense you’re going to have to deal with when you’re looking at enfranchisement. And giving an exact figure at an early stage of the total costs is often not possible.
It is, however, possible to come up with a reasonable estimate of the costs involved, although it has to be made very clear to the leaseholders that any figures are just estimates. The costs liable to be paid during collective enfranchisement include (but may not be limited to):
· The actual cost of buying the freehold – known as the ‘premium’ – that is the compensation to your freeholder for selling the freehold to you
· Stamp duty charged on the purchase of the freehold
· Your Solicitors’ fees
· Your Surveyors costs for providing a valuation of the likely premium and assisting with any negotiations
(Click here to find out more about the importance of appointing a specialist lease extension surveyor)
· Land Registry fees
· The freeholder’s own “reasonable” legal and valuation costs
Depending on the situation, project management fees might also have to be factored into the calculation if the leaseholders choose to employ someone to manage the freehold purchase process on behalf of the block.
When providing your fellow leaseholders with costs and estimates, it is critical that it be made very clear that the figures are only estimates and could change. There are also substantial costs which have to be paid up front for freehold purchase.
For these reasons, when dealing with numerous leaseholders in a large, it may well be worth considering hiring a project manager with experience in freehold purchase to manage the process effectively.
Click here to read more about lease enfranchisement
NB You can also buy the freehold of a leasehold house. Click here to find out more about house enfranchisement
How Much Will Buying Our Freehold Cost ? The Importance of Estimates
People involved with organising the freehold purchase often face a “chicken and egg” situation. Sometimes, leaseholders won’t agree to get involved in a collective enfranchisement until they can be given a definite cost breakdown for the project. And how much will it cost to buy the freehold is not always the easiest question to answer at the outset.
It can also prove difficult to get leaseholders to agree to pay a deposit without having the full picture of what the freehold purchase is likely to cost.
One common sense solution to this problem is to give leaseholders an informal estimate of costs, and guarantee to them that a freehold valuation will be carried out once 50% of the leaseholders have signed up and the deadline for getting involved has passed. This gives people on both sides of the debate some protection.
Is freehold purchase much more expensive than a simple lease extension ?
Not necessarily. When you compare the costs of collective enfranchisement with the costs of a standard 90 year lease extension, there is often not as much of a difference as you might expect.
In addition, freehold purchase also offers a range of benefits which you don’t get with a single leasehold extension.
It’s also worth reminding leaseholders that if they choose not to get involved with the collective enfranchisement, they won’t be able to start any leasehold extension of their own until the collective freehold purchase has been completed. Furthermore, by failing to participate, they also lose their rights to join the enfranchisement and the 999 year extension which goes with it, and can only insist on extending their lease by 90 years.
Click here to read more about lease extension
Once all of the information has been laid out for the leaseholders, they should be able to see the huge benefits of collective enfranchisement.
Having both an experienced solicitor and surveyor on your side can help with the problems around giving concrete costs to residents. Someone with experience in the process can give leaseholders peace of mind, and this can prompt more leaseholders to sign up to the process as it allows them to see that the project is being managed professionally and by the rules.
Getting an experienced solicitor on board doesn’t have to be expensive, and in the long run can end up saving you not just money, but hassle too.
Our specialist leasehold team have all the experience you need – handling up to 500 lease extension, enfranchisement and right to manage applications being every year.
We are also members of the Association of Leasehold Enfranchisement Practitioners – the only organisation of specialist freehold purchase solicitors and valuers in the country.
Is a Participation Agreement likely to help us?
In short, quite probably.
Why? These are agreements which are legally binding on all leaseholders to sign, setting out the plans for an enfranchisement. If you’re dealing with anything other than a very small more block with just a few leaseholders, an agreement of this sort is probably essential.
Our solicitors can draft a bespoke participation agreement for your situation.
Click here to read more about Participation Agreements
What happens if we are worried about management of the block but can’t afford the price of freehold purchase?
You have two options here.
1. Working together with other leaseholders to take over the right to manage your block – or
2. Alternatively, though this is much less common, you can make an individual application to court for the appointment, by the court of a new manager for the block. This application can be made without involvement of any other leaseholders and without you needing to take over the management of the block yourselves, with others.
Click here to read more about Court-Appointed Property Managers
Click here to find out more about the differences between lease enfranchisement and the right to manage