Purchasing the Freehold of your block of flats. Is it as advantageous as it sounds?
March 28th, 2014
Owning the Freehold of your block may sound beneficial as Leaseholders believe this will increase the value of the property and enhance the saleability of one’s unit. However the procedure can be a very daunting as Leaseholders have to become economically cautious and it is by no means a swift process.
It is vital there is a well-organized and cooperative group of residents willing to put in the hours to oversee the management of the building and its ownership structure for many years to come. If Leaseholders are purchasing the freehold to enhance the saleability of their unit prior to selling, then there is always a risk that the new tenant may not participate in any involvement. Within a few years the once enthusiastic pool of residents could dwindle down to a single individual carrying the weight of the management on his lone shoulders.
The necessary involvement from some Leaseholders may be onerous with issues such as maintenance, improvements, licences to assign or alter, noise nuisance and company administration in the offing. One must also consider the legal implications of being a freeholder, the potential risk and liability of not being health and safety compliant, the risk of not demanding monies in accordance with the relevant legislation; these are all costly mistakes and require constant attention. In this respect ownership of the freehold to a block of flats cannot be compared to the ownership of a freehold house.
Should the motive of purchasing the Freehold be the cost of insurance, maintenance/ management issues or dissatisfaction with the service provided by the freeholder, an alternative starting point may be to approach the Freeholder to raise these concerns. The Freeholder has a vested interest in retaining their asset so are likely to take your concerns very seriously.
In our experience Leaseholder’s prefer to extend their leases to protect their interest in the property; this has a similar impact upon the value of the flat but circumvents the risks highlighted above.
It is much easier to extend the lease on the property and this is a much more economical way of increasing the value of the property. The process is far less complicated and considerably quicker, therefore benefiting any leaseholder wishing to sell in the near future.
Leaseholders should consider carefully whether it is better to have a landlord they can revert to as a point of contact rather than be entrapped in arguments with their neighbours. A lease extension seems to be a much more viable process.
Ryan Bridges BSc (Hons)
Asset Manager
