From leaseholder to freeholder

More and more leaseholders are investigating buying the freehold of their apartment block. Michael Denmead, a property expert with Cambridge-based solicitors Barr Ellison, offers some helpful tips.

There are clear and convincing reasons for leaseholders to buy the freehold of their apartment block.  First, apartment owners would gain power over management of the building thereby controlling costs. 

Secondly, long leases could be granted to all participating apartment owners with little additional effort.   This point is particularly important for those with leases approaching the 80 year mark, because landlords are able to charge marriage value on these leases.  Marriage value is effectively an additional (potentially very expensive) charge applied to leases of less than 80 years.   This situation would make an apartment less attractive to potential buyers.

Thirdly, the ground rent can be reduced to zero, which is clearly a good thing, though again this would only apply to participating apartment owners. 

“There are two ways of buying the freehold,” says Michael. “The first is landlord-led.  If the landlord wants to sell then, in the majority of cases, they must first offer the freehold to the apartment owners who have the right of first refusal.”  

The second option is led by the apartment owners who have the right to initiate the process of purchasing the freehold.   “Although the apartment owners need to be well-organised, it’s not rocket science,” says Michael.  “To be eligible, the block must have at least two apartments and be no more than 25% commercial.  Two thirds of the properties must be owned by individual leaseholders.”

Whether the process is landlord-led or leaseholder-led, the immediate challenge will be to set up a steering committee and quickly form a limited company with around three or four directors.  The new company would have all participating apartment owners as its shareholders, thereby making it the ideal vehicle for owning the freehold.   At an early stage, all participating apartment owners should enter into a straightforward legal agreement to protect everyone’s position.

Once the process has started, expenses will mount so careful budgeting is required.  Chief among the expenses will be legal and valuer fees.  In each case, it is crucial to appoint an expert with a record of success.   “Turning a leasehold into a freehold can be a very rewarding activity but it does need to be thought through and professionally managed,” Michael emphasises. 

Our Enfranchisement / Right to Buy section has further information.  Michael Denmead is available to deal with any queries on 01223 417261.

More about Right to Buy/Enfranchisement.

The information given in this article is of a general nature only and should not be considered as advice applicable to any particular situation for which specific request should be made to us.

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