Evening Standard Homes and Property Section 24 May 2006

Deal or no deal?

So your landlord is offering you the chance to buy the freehold. Get organised and act fast, says Jane Barry

You own a flat in a block and a notice has just been dropped through your letterbox: the landlord plans to sell the freehold to another company, but by law is giving you and your neighbors the “Right to First Refusal”. This means you and the other flat-owners can club together to buy the freehold yourselves. The notice may be bewildering, but one thing is clear: you have only two months in which to act.

“These notices often come out of the blue,” says Alex Greenslade of Leasehold Solutions, a firm specialising in helping leaseholders buy their freehold. “People don’t know what to do; they are often like rabbits frozen by headlights”.

Ironically, the notice may be very good news. Buying your freehold this way can work out cheaper and quicker than by the conventional route – negotiating with the landlord under the 2002 Leasehold Reform Act. With First Refusal your landlord names a fixed price, but this is only the open-market value of the freehold. When you buy under the 2002 Act, the landlord can insist on adding the “marriage value” to the price; this means splitting 50-50 the increased value of the freehold to the leaseholders once they have bought the freehold and given themselves new 999-year leases. Having a virtually eternal lease can be a big bonus, so avoiding the marriage value add-on will make a big saving.

One example cited by the Leasehold Advisory Service (LEASE), which gives free advice to leaseholders, showed how the £15,000 market value price of the freehold on one 10-flat block soared to £82,500 after marriage value was added. Another advantage of First Refusal is that, so long as you don’t pull out during the process, you do not have to pay your landlord’s costs.

However, that two-month clock doesn’t stop ticking: you must stay calm and act fast. Get together with your fellow leaseholders without delay, says LEASE’s Peter Haler “First, work out whether this is something you and your neighbours want to do. Calculate the advantages and the disadvantages,” he says.

Lawyer Paul Marsh, of law firm Carter Bells, suggests two reasons why you might want to buy: “If the landlord is appalling and big repairs are needed, or if your lease is short,” he says.

Your next step is to get professional advice. Although the landlord’s price cannot be challenged, you will need a valuation. LEASE’s Haler explains: “It ought to be a bargain, but the landlord may be pushing his luck. If the price is anything above £10,000 you should get advice.”

Lawyer Marsh stresses: “Speak to a competent valuer, the local estate agent is the last person you should go to.”

Not surprisingly, valuer Justin Bennett, of Langley, Byers, Bennett, agrees, but explains that no one should expect an estate agent to be able to give them more than a ballpark figure. “If you don’t see an expert valuer you could end up paying an inflated price,” he warns.

Another valuer, James Flynn, says: “Most leaseholders are inexperienced, they are swimming with sharks and need a bit of protection.” Jason Hunter, a lawyer with firm Russell Cook, recommends taking legal advice early on the grounds that there are “strict deadlines and lots of pitfalls”. LEASE has lists of specialist valuers and lawyers.

But your biggest problem, particularly if your block is heavily sublet, may be roping in enough leaseholders by the deadline. For First Refusal, you need more than half of the leaseholders to accept the landlord’s offer. Though simply returning the acceptance notice does not commit you to the purchase, from then on, if you don’t keep at lease 50 per cent of your neighbours on board during the two months, the deal will fall through. Here, a specialist “enfranchisement” company could help.

Alex Greenslade of Leasehold Solutions says: “People sometimes need companies like ours if time is against them. We will knock on doors and track down people.” For a stage-by-stage fixed fee, the firm will co-ordinate the process, from returning the acceptance notice to helping set up a limited company to be the nominated purchaser during stage two, leading up to completion. But you must still act fast.

Greenslade is often consulted by blocks when four weeks have already passed and that can be too late. “It’s almost humanly impossible to achieve a purchase for some blocks in such circumstances,” he says. “I think the law should be changed to give a bigger time window – there should be four months before the first deadline.”

But LEASE’s Haler feels the landlord must also be considered and that the timescale is fair for both sides. If leaseholders can get organised there are definite benefits for them in the Ion term. “In theory,” he says, “it should he much cheaper and quicker to buy this way. It is a much better deal, but you must ask questions first.”

Copyright Leasehold Solutions and Alex Greenslade. Reproduction by permission only