UKC

We have just been informed that the leasehold to our house has been sold to a management company. They have written to us offering to sell the leasehold to us for £950. The rent per year is £18. Is this good?

It is something we wanted to do and we will seek advice, but I just wondered if the UKC collective could shed any light on whether this is a good deal or not and should we expect the weathering of any sort of legal storm or scam?

Cheers in advance.

In reply to ByEek:

Do you mean buy the freehold ? It seems likely you already own a leasehold interest at least.

In reply to Skyfall:

Yes. Buy the freehold.

In reply to ByEek:

What is the remaining length on your lease?

In reply to ByEek:

The value of a freehold is typically 15-20 times the annual rent, although that assumes plenty of time left on the lease. The killer is often associated legal costs, is this a package including the sellers legal costs.

In reply to The New NickB:

That was the sort of response I was after. There is still about 960 years left on the lease and I imagine this company have snapped them up cheap and is looking to turn them over for a quick profit. In my mind, £950 is good value when compared to the value it will add to our property, but there have been quite a few horror stories recently about big corporates getting in on the lease / ground rent business and throwing their weight around.

In reply to ByEek:

Sorry for simply trying to clarify the basic facts ....

Given the very long length of your lease, are you actually bothered about buying the freehold for nigh on a grand? Historically leases only start to devalue when the length to run is considerably less than 100 years. Of course, you might have other reasons but it seems a fairly high price.

You say it will add a lot in value. I'm not saying it won't but, for the reason given above, I'm a little wary. Have you had it independently confirmed? If it does add more in value then it seems a no-brainer (assuming you have the funds available and don't mind tying them up) but I'm a little doubtful.

And, yes, some companies (including the property developers themselves) specialise in buying books of freeholds either to hold as investments or to sell at a quick turn. Of course they do it to make money.

In reply to ByEek:

I am no expert but a few thoughts that come to mind:

1. Why buy it? Are there important restrictions in your lease?

2. Not too sure it'll add much value or any value to the house. With 960 years left and £18 rent p.a. I doubt your leasehold will be an issue for most buyers unless there are other reasons.

3. Is it a house? I think if there are others sharing a building (eg flats) you'd need to all buy it together.

4. You'll need to find out about legal fees, you'll likely be asked to be theirs too.

In any case, maybe you shouldn't rush into buying it and say that with so many years left on the lease you don't think it's worth much? Just to see if they'll drop the price a lot - I doubt they'll want to sit on it if they're in for a quick buck. What's the worst that can happen, I think as long as you owned the house for 2 years you can always 'make them' sell it to you (might be worse going down that route in terms of legal fees though, worth checking)

In reply to ByEek:

There are quite a few online valuation calculators. You can also find lots of tribuneral decisions on line as well.

In reply to ByEek:

Make them an offer.

In reply to ByEek:

I would buy it. It represents a 1.9% return, tax free, so equivalent to ~2.4% if you pay the 20% tax rate. So it'll probably pay for itself compared to current savings accounts. I suspect it will also help you sell as a freehold is more attractive to many people than a leasehold.

In reply to wintertree:
Cheers all. Something to mull over. I guess the appeal to us is that it gets a potentially difficult-to-deal-with landlord off our back. There have been quite a number of horror stories about management companies throwing their weight around and levying huge management fees at homeowners who wanted to extend or change their properties. I guess the first step is to find out exactly what is in our leasehold and go from there.

In reply to ByEek:
I d buy it . It probably makes no difference to you but it when you come to sell it makes the house more attractive to some potential purchasers . This could mean a quicker sale and potentially a slightly higher sale price. Two identical houses in the same street , one has the freehold attached one doesn't . Both the same price . I d buy the one with the freehold.

In reply to mike123:

Yes - that is my thoughts. Quick question though. We don't plan to sell any time soon, but will need to remortgage in a few years time. Will a freehold gives us a higher valuation / smaller loan-to-value rate?

In reply to ByEek:
For a grand (or whatever you agree) it is probably worth acquiring.

Not so much as the rental saving, that's fairly minimal, but more that you have ultimate control and thus peace of mind. I suspectthere are no funnies or overly onerous covenants or requirements of the lease but you never know.

With over 900 years unexpired a lender will treat it as freehold (unless it contains aforementioned funnies) anyway but it is good to be able to offer a freehold if you sell.

There's not really an investment play here, just more a case that you will not have to worry about a management company in the future acquiring it and trying to impose service charges etc.

The legals should be straight forward.

In reply to ByEek:

Covered by john above, but probably not.
However I just a thought of something else. I can't think of any reason why in the future you would regret buying . I can think of couple (unscrupulous developer buy s up all the free holds and tries dirty tricks campaign , all of which comes to nothing but causing unnecessary stress etc) of reasons why you might regret not buying .

In reply to mike123:

Agree - unless there was something material in the lease I would not value the property lower due to the 900 odd years unexpired than if it was freehold, especially if it was common to see long leasehold properties, such as in London or Edinburgh or anywhere where the Church or lord of the Manor / ICI etc has had extensive land holdings.

In reply to ByEek:

The situation often changes when you consider flats. In this case sharing the freehold allows maintenance to start taking place, whereas many freeholders charge a maintenance fee but don't do the needed maintenance, or otherwise skimp.

But I don't see much advantage to converting long lease to freehold with a house.