Owners of flats where the lease is winding down towards 80 years should act fast to buy the freehold and preserve the value of their home, says a firm of chartered surveyors.
Evelyn Levisohn, spokeswoman for myleasehold, says: “When money is tight, it can be difficult to get tenants in a block of flats organised and agreeable to paying out what can be several thousand pounds to acquire their freehold, as permitted under legislation of 2002.
“But lenders are becoming increasingly reluctant to lend on short leases, so some sort of action is really a no-brainer – either a purchase of the freehold or extension of the leasehold which will make eventual purchase of the freehold significantly cheaper.”
The problem, for those tenants who put their heads in the sand, is that once a lease has less than 80 years to run, an extra element of compensation becomes payable to the freeholder which is called ‘marriage value’.
If you can’t agree to buy the freehold with your neighbours, go it alone and extend your lease. In fact, most transactions in this sector end up as lease extensions.
Levisohn adds: “Whatever the length of your lease, you should still look into extending it or buying your freehold now, as it will most likely only cost more in the future.”
Leaseholders who wish to kickstart negotiations can apply to their freeholder, or freeholders might make an offer to the leaseholder.
In some cases, the negotiations involve local authorities, some of which have significant property holdings subject to long leases as a result of right-to-buy legislation introduced by Margaret Thatcher.
In the borough of Wandsworth, south-west London, the local authority asked for a premium of £30,000, after leaseholders served a notice of claim to acquire the freehold. After negotiations handled by myleasehold, a premium of just £3,000 was agreed.
A similar negotiation in Kensington and Chelsea began with the council initially requesting £10,600. A final price of £7,500 was agreed.
Levisohn says the negotiation has always been a key aspect of the process because the initial price quoted by a freeholder, either at their suggestion or the leaseholder’s request, is invariably inflated.
“Flat owners should approach this process assuming that their freeholder is looking to maximise profits and might go so far as to drag out negotiations, hoping that the flat owner will give up the chase,” she says.
“However, with an experienced surveyor and solicitor, flat owners can start the process confident that they are going to pay the right price.”
Factors influencing the negotiations include the value of the flat, the length of the lease, level of ground rent, whether garages and garden areas are included, and whether there is scope to develop the property further.