Purchasing the Freehold of a House

[Jeffrey Shaw 90]

What is the situation if you are offered the lease by a company but say an interior wall has been removed or you've put up a garden shed without having written permission from the the last lease owner**?

 

I wouldn't have thought the erection of a garden shed would be too much of a problem, considering sheds are temporary structures. However, the removal of an interior wall, ah! Who removed the wall? If it was a support wall, were building regulations adhered to?

** You mean 'freehold reversioner'; a leaseholder cannot give consent to him/herself!

 

Either way, even a breach of covenant does not preclude the leaseholder from enfranchising (buying the f/r).

[Jeffrey Shaw 90]

Am I right in thinking those building regulations didn't come into effect till 1980 ....

Any way, assuming every thing else was in order except written permission, would this alter the lease in any way or would you just have to pay for the written permission ?

I'm asking this because recently I remember reading where some one had been asked for £500 because they had built a porch without written permission, and I was wondering if this would have been just a one off payment ?

No. The Building Act was in 1984- but it merely brought forwards legislation that was previously in the Public Health Act 1936. Building Regulations- and associated byelaws- are made under one or other of the Acts; they (Byelaws) differ from Council to Council.

 

However, don't confuse:

a. the Acts of 1936/1984 and Byelaws; with

b. consent from the freehold reversioner.

Neither depends on the other.

[Hippogriff 10]

So, I went and investigated this further and I now have an offer.

 

My annual ground rent is £60.

 

My lease is a 125 year lease and it has 106 years remaining.

 

In basic terms, from research, my expectation of what the freehold would cost was somewhere in the range of 20 to 30 times the annual ground rent - so that would range from £1,200 to £1,800.

 

The 'offer' that has come back is £3,856 plus £750 legal costs. That seemed to be high. Well, it was way outside my expectations - with it being 62 times the annual ground rent.

 

I queried it with them. They said that "the term of your lease is 125 years so the calculation of the purchase price would be considerably higher than 30 times the ground rent. If the term of your lease was 999 years then your expected valuation would have been accurate." which is not something I'd been aware of before.

 

I knew that the years remaining on a lease could affect the value - but I was not aware that the defined length of the lease would affect the value.

 

I know I can negotiate and I know I can involve a Tribunal. Does anyone have any experience and can advise if they are trying to bilk me with this offer?

Edited June 15, 2012 by Hippogriff

[Hippogriff 10]

I asked if the price was negotiable (expecting it would be) and they have come back with a price of £3,599 (6% off their first price). They are adamant that because my lease was originally 125 years, rather than 999, that this has a significant bearing on the value. I'm not convinced until I hear a bit more about why this might be... but they don't want to tell me.

 

It all feels very speculative.

[Kaye2812 10]

As there is only 106 years left on your lease then, as far as I believe, there would be a freehold reversion cost on top of the usual 10-12 times annual ground rent calculation. This is based on the value of the house and the number of years left on the lease. If you google freehold reversion calculation you will find an online tool which can give you an estimate of what this could be. However, in order to work this out properly I would recommend that you instruct a solicitor who is knowledgeable in this field. I think the cost of the solicitor would be more than recouped in the price you pay as £3599 does seem high to me... Unless you had a house worth a LOT of money. Receiving a letter from a solicitor may just prompt your landlord to offer a much better price without having to take it to the Land Value Tribunal.

 

Jeffrey Shaw on here may be able to help you in this department.

 

Good luck with it all.

[Hippogriff 10]

Thanks for that.

 

I certainly thought some kind of marriage value thing came into play at about 80 years remaining. But, this has 106 years left of 125 years, so I thought that it wouldn't be applicable. I'm guessing that marriage value is something different to a freehold reversion?

 

I have seen the calculator at http://www.freeholdcalculator.com/calc.php and I tried it out... with the value of my house, which I've put in at £120,000 (so not a lot of money, at all) it gave me figure of £1,680 when I put in £120,000, 106 and £60 (I left everything else the same as I wasn't sure was figure was appropriate for the other three fields in "Settings".

 

£1,680 doesn't sound bad to me. I'd go for that. I'd even go with a modest profit tagged onto this for the current owner. But over twice that sounds like profiteering until I get to understand this more.

 

Looks like I may need a solicitor to do my fighting for me then, not just the admin. part.

 

With everything else remaining the same, I have to put in a house value figure of £500,000 into the calculator to get an outcome of £3,836 (which is what is being asked for this right now).

[Jeffrey Shaw 90]

Yes. No marriage value is payable until there's less than 80yrs. left.

BUT you need to balance:

a. the rather greedy price that the freehold reversioners demand; against

b. the cost of LVT proceedings (likely to exceed £1000).

 

You see, there's no fixed formula. The price is negotiable. Also try http://www.lease-advice.org/information/faqs/faq.asp?item=117

 

Your figure is £1680. Theirs is £3599. EACH party would have to pay its own LVT costs if that route is followed; so both can probably save by meeting somewhere in the middle [say, £2500?]

 

Did you serve a statutory Notice of Claim, to show that you know your rights?

Edited June 18, 2012 by Jeffrey Shaw

[Hippogriff 10]

Jeffrey - thank you.

 

When I initially enquired with them, they told me I had to pay £75 to have a quote released. I queried that - saying that I believed I could just issue this notice of claim. It sounded like a potential waste of £75 if they came back with an unacceptably high offer. They were quite clear in their response, saying "I can confirm you will need to instruct your solicitor and you will need to submit a form either way because we need to ascertain how much it’s worth on our part."

 

So I filled in the basic form and paid up the £75. £75 is not the end of the world and it's the sum total of what I've paid out so far to have received these two offers.

 

I had also queried it with a solicitor, who advised that "I would confirm that some Ground Landlords do require you to pay for a quote for the cost of purchasing the same." and also "Your best way of proceeding would be to pay the £75.00 to obtain the quote and see if the same is acceptable to you."

 

I'd rather spend £1,000 on LVT to get a much fairer price but - as you say - there is no fixed formula, so I guess there's no guarantee. However, all of the stuff I've read (and the calculator I've used) set my expectations at 20 to 30 times the annual land rent... not over 60 times.

 

If you end up at an LVT, if the costs to each side were around £1,000, would they pay their own costs regardless of the LVT's decision?

 

So, if the issue went to LVT and they said it was worth £1,680, then would I have paid £2,680 in total, and they'd have paid the same £1,000 costs? But if they said it was worth £3,599 then I would have paid £4,599 and they would still pay the £1,000 costs? Basically - there's no winner and loser - just a decision coming out of the LVT and each party has their own costs to pay?

Edited June 18, 2012 by Hippogriff

[Jeffrey Shaw 90]

1. They had (and have) no right to charge you £75 for providing a sale price. You've been ripped-off.

2. Yes, each side pays its own LVT fees- win or lose- unlike in an ordinary civil court.

3. And that's why 'meeting in the middle' is more cost-effective unless you're very sure that the LVT will agree with your figure or something near to it.

[Hippogriff 10]

Excellent... at least I now know what kind of outfit they are. My challenge now is to not get ripped-off twice.

[Hippogriff 10]

So, I went back again and I asked if there was even a chance of us negotiating sensibly on this price.

 

Starting from £3,856, they dropped to £3,599 and - now - have come down to £3,341. These piecemeal reductions, I reckon, are designed to find where I'll be able to jump in at.

 

Whereas the first discount was just over 6%, this one is 13%. Actually, it's just doubled - so it's obviously just a numbers game.

 

I may well be employing someone here, it feels...

[Hippogriff 10]

Further progress; another email in from them today...

 

"After further consideration, we have decided to offer you our final price of £2,570 plus legal fees subject to contract."

 

This is close to what Jeffrey Shaw suggested might be a fair compromise on the 18th of June.

 

Much more tempted now. I think their legal costs (set at £750) are a bit much, though.

 

Bit annoyed they didn't act fairly and reasonably in the first place, though, and it's taken several emails over many days to get to here. A bit of profit is OK - but going for a fair price in the first place, rather than something speculative, is more honourable.