How To Buy Your Freehold Guide
When you first approach buying the freehold, it can seem complex. Many leaseholders who wish to purchase their freehold often wonder where they should start, and do not have the complete picture of exactly what’s involved at each stage of the process.
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So to help with this, we’ve put together a step by step guide that outlines each one of the steps a leaseholder looking to purchase their freehold may encounter.
1. Find the right project manager
Though it is possible to buy the freehold by managing the project on your own, at The Freehold Collective we advise seeking the help of a dedicated project manager with a wealth of experience in successful acquisitions.
Freehold acquisition project managers provide a variety of services and recommended trusted professionals, such as solicitors, to clients who want to acquire the freehold of their property.
It is these services that make all the difference, as the process may be non-linear and can sometimes take up to two years based on legal difficulties.
Freehold property managers offer their clients valuable information, assistance, and guidance throughout each step of the complex process. The ideal agent can and will answer queries, solve problems, avoid issues and sometimes just provide comfort to leaseholders who are making the transition from tenants to freeholders, so it’s important to do your research. Start by reading up on the definition of a freeholder.
In the meantime, look for a freehold project manager that will:
- Offer support through each stage of the purchase – not just the initial forming of the collective
- Has years of experience in managing freehold acquisitions of all shapes and sizes
- Is always responsive and contactable
- Is willing to go the extra mile to ensure resident happiness
2. Hold conversations with neighbours
Initially, it is very important to keep any consideration of buying the freehold confidential. If a freeholder finds out that a freehold acquisition is coming, they can take steps to devalue the freehold, to give themselves more control after the acquisition, or even to make it harder for the leaseholders to purchase. TFC are experienced in approaching people in the right way.
When it comes to purchasing the freehold of a building, at least half of the building’s tenants must consent to the transaction in order for it to proceed with a freehold purchase. This appears to be an intimidating number at first because leaseholders may not know even one-half of the building’s inhabitants, or may be unsure how to approach them about such an opportunity.
Fortunately, although half of a building’s residents must agree, there are a number of ways to achieve this, and it needn’t be expensive for all involved. Each building is different, and there is very often an overlooked solution that will provide the best outcome.
Freehold project managers understand the importance of collaboration between neighbours in the process of buying freehold property and make the procedure of asking for permission from your neighbours simple. Each leaseholder will have their own individual circumstances, and the freehold acquisition process can be tailored so that it is right for everyone.
A project manager is invaluable at this early and delicate stage, because they can inform each and every resident about the procedure and offer them the opportunity to ask questions. A freehold project manager is far better equipped to answer these inquiries than the initial steering group, as they give expert advice and professional answers, which helps to put early worries on hold. Find out more about our freehold purchase acquisition approach.
3. Check leaseholder eligibility requirements
This is where freehold project managers can step in to ensure that every member of the acquisition group, as well as the structure itself, meets relevant legal standards. The eligibility requirements are:
- The building must contain at least two flats or apartments
- No more than 25% of the freehold building can be being used for non-residential purposes, i.e: offices or shops
- Two-thirds of all flats or apartments in the building must be owned by leaseholders with long leases
- Half of all flats or apartments in the building must be owned by leaseholders willing to purchase a share of the freehold
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4. Ensure everyone understands what it means to purchase a share of freehold
It’s important to make sure that all leaseholders entering into a collective to buy a share of freehold understand what purchasing the freehold really means.
When freeholders form a collective to purchase a share of freehold, they gain shared ownership of the property by establishing a limited company structure. The building is then held under the company name, and each participating leaseholder owns his or her share of freehold through this separate legal entity. This limits liability, and ensures the running of the freehold company is governed by set articles of association.
It’s critical for freeholders to properly evaluate their options before choosing a structure, which is where the help of freehold project managers comes in.
Project managers can evaluate the structure of the property and the quantity of leaseholders, then help leaseholders decide on which legal form would be best for the needs of the property. This is something that a leaseholder would have great difficulty in determining and correctly executing on their own because incorporating a limited company requires the same formation procedure as any other commercial business but must be tailored for freehold ownership.
Still unclear about the share of freehold?
5. Understand and define the freeholder rights and responsibilities
A freehold is more than simply having a piece of paper; just like any other kind of property, there are duties associated with the title. Whilst some of the responsibilities can be delegated to a Management Company, it is still critical that everyone understands what owning the freehold entails.
Whether freeholders choose to handle their responsibilities independently or alongside the services of a freehold project manager, freeholders must be willing to:
- Undertake or oversee maintenance and repairs to a building’ structure, including its roof and guttering.
- Ensure the upkeep of maintenance and repairs in communal areas.
- Arrange and schedule any internal or external general maintenance, such as cleaning, decorating, or painting.
- Maintain control of utilities such as heating, plumbing, and electricity.
- Arrange, oversee or undertake any pest control work
- Arrange, oversee and prepare the property or block for major works ensuring that they follow Section 20 of the accommodation act
- Oversee, arrange and communicate with contractors to schedule works and arrange payments
- Ensure that the building complies with health and safety regulations
- Issue licences to alter and licences to assign where required.
- Manage things like buildings insurance, ground rent collection, service charges, management reports and utilities.
There are plenty of freeholder responsibilities.
Use our free checklist to make sure you’re on top of them all.
6. Plan for the costs required in the purchase
A freehold purchase comes with a cost; nevertheless, it should never be assumed that this is beyond a person’s means. Freehold project managers can handle any freehold acquisition and make sure that any associated costs are covered, fair, and reasonable for the participating leaseholders willing to buy the freehold.
There are several elements involved in determining the cost of a freehold purchase. The most important factors that freehold project managers consider are: the size and position of a block or building, the number of flats in a building, the amount of time left on each lease before it expires, the ground rent demands, how many people participate, as well as any value added after purchasing the land.
These factors influence the two main calculations that will ultimately decide the overall cost of the purchase. These are the fees, and the premium.
The Fees
Fees relate to the costs that leaseholders will pay throughout the process, including the company formation fee, Directors and Officers insurance fees, and the fees of professional services like solicitors or valuers. At The Freehold Collective, we provide estimates for these on a per-flat basis.
The Premium
The premium refers to the actual purchase price of the freehold itself. To attain this figure, it’s best to always start with a professional valuation (as we do in the first phase of our acquisition process). The cost to each leaseholder will be based largely on their ground rent and lease length, but other things, like residual estate (non-participant leases, common parts and assets like roofs and car parks) will also be taken into consideration.
Often, people also overlook freeholder fees and company running costs in the overall purchase. These figures don’t usually amount to much, but TFC will ensure that you collect them and know about them when relevant.
All of these things may appear to be costly – but any freehold purchase done correctly will always make financial sense. Freehold project managers can guarantee that you will receive benefits, either in control, uplifted values, or further opportunities within your block, equal to or, more likely, far exceeding the cost of a freehold acquisition.
If you’re buying a freehold flat, the same fees apply as they would to a building.
Find out more in our guide to buying the freehold of your flat.
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7. Serve notice
Once a collective is in place, the next stage is to officially serve the landlord with notice under the Leasehold Reform Housing & Urban Development Act 1993 and as part of a collective enfranchisement process.
In this phase, your freehold managing agent would contact the landlord with the lowest defensible offer after preparing diligently beforehand to gather as much information as possible. Information usually includes things like the identity of the freeholders, the names and addresses of participating leaseholders, details of any flats in control of the landlord, as well as information taken from the land registry regarding general information about the building.
Serving the notice is a crucial stage, because the correct notice ensures that the freeholder cannot refuse the purchase.
The service of the notice also establishes the ‘valuation date,’ as the same day that the notice is presented. The valuation date is when the variables affecting the freehold’s price, such as the number of remaining years on leases, present values of flats and their anticipated future value, are determined. As a result, the length of negotiation or determination of price will be based on the circumstances as they stand on the date that the notice is presented.
Very few areas of law allow a compulsory purchase order such as a notice, which is why it is imperative to work alongside professionals when issuing the document.
8. Begin the negotiation process
Once the notice has been issued to the landlord, the next stage is for the freeholder to issue a counter notice. A counter notice begins the negotiation process and is especially daunting because the freeholder will almost certainly come in with a high offer.
This is where having an accurate and thorough valuation to refer to becomes a crucial and necessary tool for leaseholders. Freehold managing agents are invaluable in the negotiation process as they can make everyone aware of realistic fees and valuations, manage expectations by liaising between valuers and solicitors or barristers, and perhaps most importantly: ensure a group strategy is deployed.
As the negotiation process is so intimidating, it can be common for leaseholders to become nervous and separate from the group. Freehold managing agents can mitigate this by being on hand to calmly explain, advise, and keep a group together – which overall, brings better results.
Again, this may appear intimidating as it is entirely in the hands of a landlord or an existing leaseholder to prohibit the transfer. But by giving the appropriate written or spoken structure for entering into negotiations to purchase a leasehold, freehold managing agents can aid with this.
Perhaps one of the most important services of all that freehold managing agents offer is their help with the negotiation proceedings of buying a freehold. In the acquisition process itself, there could be legal processes which the collective group may have to go through.
One of the most essential services provided by freehold project managers during the process of purchasing a freehold is their assistance with the negotiation stage. Throughout the acquisition process the collective group may encounter legal processes that must be completed ahead of a successful purchase.
It’s well known by freehold project managers that the negotiation between the present landlord or leaseholder and the collective wanting to buy is the most unpredictable part of the purchase process. Freehold collectives or Right to Manage firms would struggle mightily with this procedure if they didn’t have access to a freehold managing agent’s knowledge, skills, and network.
Project managers may use reports and analysis from the solicitor to build a strategy for both counter notices and tribunals. In the end it is their methodical approach that ensures that leaseholders are successful in getting their Freehold at market value or less.
9. Prepare for successful ownership
After buying a freehold, many new freeholders discover that they have no idea where to start. There might be things like short tenancies and investment possibilities to consider, as well as how to locate the best deals on property insurance and contractor agreements.
This is where The Freehold Collective stands out as a project manager: we provide a fully customised service that aims to help freeholders throughout the freehold acquisition process, and doesn’t stop once they’ve obtained their freehold.
Working with solicitors, managing agents, insurance brokers, and more, we provide a full range of services to freeholders both before and after they acquire their property. We assist them in adjusting to their new role as Freehold owners and offer impartial knowledge and advice for when new freeholders confront initial and regular daily upkeep issues.
As well as buying your flat’s 999 year lease, and a share in the freehold, there are often other assets that come along with a freehold purchase,
Conclusion
Buying your freehold may seem complicated, but it is considerably simpler when you work with knowledgeable freehold project managers. Project managers have years of expertise in the field and understand how to successfully complete a deal for fair market value, so you don’t end up losing money or time spent.
A qualified project manager will help navigate the complex world of freehold ownership. They’ll work with all parties involved in any negotiation cases that arise during the purchase process, as well as give guidance and expertise throughout ownership phases by providing impartial advice, important insight, and extensive knowledge on how to purchase a freehold acquisition effectively.
