Should I buy the freehold? About freehold valuation

As you know, as the owner of a leasehold flat, somebody else – the freeholder or landlord – owns the building itself and the common areas like hallways. That’s why leaseholders have to pay service charges, insurance, ground rent and other charges. Can you buy the freehold, and enjoy the ‘right to manage’ things yourself? Here’s some insight.

About buying a freehold

Leaseholders have the joint right, along with their fellow leaseholders, to buy the freehold of the building they live in. It’s called the right of freehold enfranchisement, where the leaseholders collectively act as the freeholder. As such you can’t do it without the other owners of flats in the building, at least half of whom need to agree to buying the freehold.

What do you own thanks to a freehold?

As residents you own the freehold of the entire building, which is often managed via a limited liability company owned and controlled by the flats’ owners. Each flat’s residents have a long lease of their own, but the lease doesn’t come from the old freeholder any more, it’s from the new limited company.

When you own your own freehold you can get together with your fellow residents to decide on the ground rents. You can shop around for the best buildings insurance deals instead of having to accept the insurance company and policy chosen by the freeholder. And you can extend your lease to make it longer, only paying the legal fees.

Are you eligible to buy the freehold on your building?

There are some requirements to meet if you want to buy the freehold. There must be at least two flats in the building. No more than 25% of it can be used for non-residential purposes, for example business. At least 66% must be owned by leaseholders on long leases of at least 21 years, and a minimum of 50% of the flats must belong to leaseholders who want to buy a share of the freehold.

Should you buy the freehold?

You might have difficulties dealing with your freeholder. You might simply want to manage everything yourself instead of having to deal with a freeholder who doesn’t live on the premises or who is hard to reach. Some people do it because they feel the ground rents and other charges are too high, others because their lease is running low.

At 80 years a lease is a lot more costly to extend, and it also costs more to buy the freehold, which makes the flat both harder to sell and worth less. Obviously you need to have the money ready to buy the freehold, whether it’s a mortgage or cash, and you’ll also need a reputable freehold valuation to establish the freehold purchase price.

How much is it to buy a freehold?

You could use an online calculator but they’re not very good. There are so many different variables to consider, things like the location, the building’s condition, the length of the leases involved and more. Bear in mind you’ll have to pay out for legal fees, the freehold valuation fees, and potentially Stamp Duty too.

What does freehold valuation involve?

The current value of a freehold involves the annual ground rent, the remaining years on the lease, the expected increase in the value of the property, future inflation, and interest rates. An expert chartered surveyor will know exactly how to value your freehold fairly and accurately.

Alternatives to a freehold

You don’t always have to buy the freehold to have the right to manage your own building. The law lets you set up a ‘right to manage company’ to which you and your fellow leaseholders belong. It means you can legally take over the management of the building or hire your own managing agent. The freeholder still owns the building, but you manage it.

The eligibility requirements for Right to Manage are much the same – you still need legal support, and you will still pay the freeholder’s professional fees. On the other hand, it’s a lot cheaper. You won’t increase the value of your flat, and the freeholder should still be told about any changes to the lease. The freeholder can even be a member of the right to manage the company.

Can we help you with a freehold valuation?

As RICS surveyors you can rely on our experience and expertise to provide a reliable, fair, fully-informed expert decision on the value of your freehold. Ask us about our popular freehold valuation service – we’ll be pleased to help.