If you own a flat which is held on a long lease of more than 21 years, you can collaborate with the other homeowners in the building and buy the freehold too. See How to Buy a Freehold below.
Freehold vs Leasehold
When you buy a flat or apartment in England or Wales, it will usually be leasehold whichmeans that you own the property for a set number of years as set out in the lease (or at least, until you sell the property). However, you do not own the land on which the property stands or the communal areas such as car parking areas or gardens which your lease gives you the right to use.
Instead, an individual or organisation owns this land, making them the 'freeholder' and you the 'leaseholder'. If you are a leaseholder, you will normally have to pay ground rent and service charges to the freeholder.
Why Buy a Freehold?
What you might not realise is that as a leaseholder, you are legally entitled to buy the freehold. You cannot do this on your own, but you can club together with the other leaseholders in the building or complex and buy the freehold between you. So, it is a collaborative effort.
There are various reasons why you might want to buy the freehold:
The freeholder is selling
If the freeholder is selling, the leaseholders must be given the right of first refusal. This means you must be offered the chance to buy the freehold at a fair price, before it is put on the open market. If this scenario arises, you might decide it's too good an opportunity to miss. You might also be concerned about who the new freeholder will be, should it be put on the open market.
You want more control
As a leaseholder there are times when you have little control over your own property, which can seem strange, seeing as you are the owner. For example, you may have to seek the freeholder's permission before you get a pet or rent out your property and you will always need formal consent to carry out alterations or other works on the property and pay a fee to the freeholder for each application for consent.
A freeholder also controls how much ground rent and service charge you pay, and how much you must pay for repairs and insurance. As a leaseholder, you might not be happy with the decisions the freeholder makes.
Your lease is due to expire
Most leases last an extremely long time (up to 999 years!) but some are much shorter. Once the length of your lease drops to 80 years, it becomes a lot more expensive to extend, and it may also deter potential buyers as they may struggle to obtain a mortgage if the remaining lease term does not meet the lender's criteria. Therefore if your lease if due to expire in the next 80 years, it is worth either extending your lease, or buying the freehold. The latter can add value to the property.
How to Buy a Freehold
Even if the freehold is not up for sale, you (along with the other homeowners in the building) can force the freeholder to sell. This is known as a Collective Enfranchisement.
If you wish to buy the freehold, you need to:
1. Check you are eligible
First of all, check you are eligible. The criteria for buying a freehold is very specific. Generally, the following criteria must be met:
- There are at least two properties in the building
- There are at least 21 years left on the lease
- At least 50% of leaseholders in the building are taking part in the freehold purchase
- At least two thirds of the flats are held by qualifying owners.
However, there are other rules that must be met and it can be quite complicated, so it's best to ask a specialist Conveyancer for clarification.
2. Set up a company
If you are eligible, the leaseholders who are buying the freehold must set up a company - usually a limited company. It is also advisable for all those buying to enter into a participation agreement setting out the agreed terms, rights and responsibilities between them.
3. Serve an Initial Notice
Then you need to serve an Initial Notice to the freeholder. Amongst other things, this must state how much the leaseholders wish to pay. This should be a fair market price, so it is worth getting a professional valuation done for the sake of accuracy. This Notice will then be registered against the freeholder's title to make sure that it is binding on any future owners and allows a leaseholder who wants to sell their property whilst the Conveyancing formalities are proceeding to assign their right to their buyer.
4. Wait for the Counter-Notice
The freeholder then has to respond within the time frames set out in the Initial Notice and has two months to serve a Counter-Notice. In the Counter-Notice, the freeholder will state whether or not they accept the sale and the terms proposed.
Next, the two sides will need to negotiate a deal and they have a further two months to do this. This includes the price and the terms of acquiring the freehold. If there are any disputes that cannot be resolved, it may be possible to go to the Leasehold Valuation Tribunal and have a Judge decide instead. Once an agreement is reached, the deal can be finalised and the sale can take place.
Instruct a Solicitor
Buying a freehold is a complex legal process with strict time limits, so it's important you instruct an experienced Conveyancing Solicitor from the start. A Conveyancer can advise you on your eligibility for collective enfranchisement, draft the Initial Notice and other legal documents, negotiate the terms and help you deal with an uncooperative freeholder.