The Observer Property
Section 12 January 2008
Andrew Moody on why more lessees are getting together to buy the freehold
of their property
HENRY TOMKINS has completed a campaign to wrest control of the freehold
of the block of flats in which he lives in central London from a property
company. The 77-year-old former electrical engineer with London Underground
enlisted the support of 26 fellow lessees to take over the 40-flat Regency
Court block in Westminster. They acquired the freehold for £150,000
at the beginning of last year and have now appointed their own agents
to manage the building.
'We had become increasingly dissatisfied with the old management and
now feel much more in control,' he says.
Recent legislation has made it easier for flat holders to group together
and buy the freehold of a building. According to Lease, the Leasehold
Advisory Service, a non-departmental government body, there is set to
be an 8 per cent increase in the numbers seeking their help in buying
their freeholds this year.
But Nicholas Kissen, a senior legal adviser with Lease, says that even
with the law now generally favouring leaseholders, it can still be difficult
to acquire a freehold: `It can be a protracted process, which is why we
recommend you use a solicitor with experience in this area, particularly
if you are dealing with one of the big property estate companies since
they know the law inside out.'
The Commonhold and Leasehold Reform Act 2002 made it easier for lessees
to buy their freehold. Under the legislation, only 50 per cent of lessees
need to act together to buy a freehold, though in the case of a house
divided into two flats both would need to participate.
Under the previous Leasehold Reform Act 1993, a 75 per cent majority was
required, and half of them had to be resident.
There is no longer any residential qualification, so buy-to-let landlords
have the same rights as residents. Leaseholders don't have a right to
buy the freehold if 25 per cent or more of the building is in commercial
use.
The starting point for buying a freehold is sounding out other lessees.
Kissen says there has to be full commitment from all the parties involved,
since you don't want people dropping out at keystages and the participant
level dropping below 50 per cent.
`I would recommend people putting in place a participation agreement
which, while not a partnership agreement, could have contractual implications
on everybody,' he adds.
Lessees are advised either to engage a firm of solicitors or one of a
number of specialist firms that operate in this area. The usual first
stage in the process is to serve a Section 13 notice on the landlord.
This will assert your right to buy the freehold and, most importantly,
the price you are willing to pay. The landlord then has two months to
come back with a counter-notice, which will often dispute your valuation.
The value of the freehold is based on a number of factors: the length
of the leases, what is called the marriage value (how much the value of
the flats will increase if those who have a share of the freehold are
granted 999-year leases), the ground rent being paid, the value of the
property and the area it is in.
`The rule of thumb is that there is none,' says Philip Bazin of the Leasehold
Advice Centre, a Guildford, Surrey-based company which helps people buy
their freehold. 'it varies drastically. There are so many variables, and
regrettably there isn't a yardstick. You can't say that typically three
one-bed flats in London are going to end up coughing up X amount of pounds.'
Before serving the counter-notice the freeholder will normally instruct
a valuer to carry out a thorough valuation of the property, which may
require an inspection of all the flats. The cost of this will be borne
by those wanting to buy the freehold.
Alex Greenslade, director of Leasehold Solutions, based in Croydon,
Surrey, says freeholders frequently try and argue that the freehold has
extra value. `The old chestnuts are, if there is a flat roof they were
going to put some penthouse flats on top, or that they have a letter from
2002, for example, offering £7,000 a year for a mast on the roof.'
With freehold acquisition, if no one can agree on a price then either
party can apply for a hearing at a Leasehold Valuation Tribunal. Those
wishing to buy the freehold are required to do this within six months
of the counter-notice being served.
There are a number of LVTs around the country. They are three-person panels
consisting of a solicitor, a chartered surveyor and a layperson (although
sometimes the layperson may be another chartered surveyor).
Each side will make its representations and the panel will make its decision.
At an LVT each side bears its own costs, whereas previously, the leaseholders
were responsible for the freeholder's costs. Professor James Driscoll
of the housing projects department at lawyer Trowers & Hamlins, based
in London, says it is important not to make any errors during the process.
`It is almost like game of snakes and ladders. If anyone makes a mistake
they go down a snake,' he says.
For Tomkins, now secretary and director of the freehold management company
that owns Regency Court, it has been worth the effort. `The building is
so much better maintained. We had a leak on the head of the main staircase
which we had to put up with for years and there are many small things
like that we have fixed, including enhancing security. It has been well
worth it.
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