myleasehold: Buying Freeholds and Lease Extensions from Local Authorities
myleasehold is a firm of Chartered Valuation Surveyors specialising in the valuation and negotiation of residential lease extensions and collective enfranchisement (freehold purchases), acting for both freeholders and leaseholders.
Focusing on cash-strapped local authorities that offer their freeholds to their leaseholders as a way to raise extra revenue, their approach is not always as fair, transparent or following in general common sense as one might expect from those entrusted by local taxpayers.
In 2002, reforming legislation was introduced allowing leaseholders of both flats and houses (including local authority home owners) to extend their leases or acquire their freehold, which opened the floodgates for claims from owners.
Typically, property owners contact their freeholder regarding extending their lease or acquiring their freehold. From there the freeholder requests a fee for a valuation, and a report follows. What is often not stated when an offer is made is that the price proposed is open to negotiation and is not necessarily a true reflection of the worth of their interest.
As a specialist firm of Chartered Surveyors who value and negotiate the price for freeholds and lease extensions myleasehold have come across a number of noteworthy cases with less than a ‘best practice’ stamp from local authority freeholders.
For example, written offers made to leaseholders by surveyors acting for the local authority freeholder can exclude a generally recognised professional principle that independent advice should be taken. The amount that can be negotiated varies enormously. Here are two examples in which the premiums proposed compared to the final settlement prices were somewhat askew:
1) In the borough of Wandsworth, the leaseholders in this case preferred to use the formal process and served a Notice of Claim on the local authority to acquire the freehold. The local authority requested a premium of £30,000. After negotiations the final premium was £3,000.
2) Another less extreme example is in W6 in the Borough of Hammersmith and Fulham where the leaseholders had informally approached the local authority, paid for their valuation and a premium of £10,600 was proposed. In this case a final price of £7,500 was agreed.
Highlighting the “absurdities”of local authority dealings, myleasehold acted for a group of residents who wanted to acquire their small block of flats from Westminster City Council.
Unable to agree the premium with Westminster, the matter was passed to a Leasehold Valuation Tribunal who deal with these matters as a last resort. The Tribunal valued the freehold to be worth £28,060 and Westminster appealed the decision to the Upper Tribunal on various points of law.
The Upper Tribunal dismissed the appeal, which meant that the original price stood: the leaseholders of the building could acquire the freehold for £28,060. The flats were not of high value, and as the leases were over 80 years the valuation was the most favourable to the flat owners.
Out of professional interest, a Freedom of Information Act request to the City of Westminster was also made by myleasehold to enquire on their total costs, in both taking the matter initially to a Tribunal and then to appeal. The disclosure advised that their legal and valuation fees totalled just under £32,000, which can be compared to the premium of the building which was £28,060, a net loss of £3,940 to the council tax payers of Westminster.
The concluding advice is that the local authorities’ approach may not be as fair or as transparent as one might expect. Home owners are wrong to assume that what they are told is the fairest price.
Case by Case
Depending on the length of the lease and the value of a property, valuation services should be tailored to suit on a case by case basis. Mark Wilson, Managing Director of myleasehold, says: “Leaseholders should never be shy to enquire whether the premium proposed by a freeholder is fair and reasonable. The method to calculate the premium is complex so home owners should hesitate before they try to negotiate terms without expert advice. Once the money has been paid, there is no going back.”
It’s not all doom and gloom, but regardless of whether your relationship with your freeholder is totally cordial or not, leaseholders should approach these types of transactions knowing or assuming that the freeholder wants to get the most out of it that they can. Do not take everything at face value. In all cases suitable advice should be taken before you hand over your cash.
For further information please contact:
Myleasehold are members of www.alep.org.uk (Association of Leasehold Enfranchisement Practitioners), a not-for-profit association that brings together solicitors, surveyors, enfranchisement intermediaries and managing agents working in the residential leasehold sector. ALEP promotes best practice by vetting members to ensure they have significant expertise in leasehold enfranchisement. Membership of ALEP acts as a badge of assurance so that flat owners and freeholders can be confident that they are employing professionals with the right level of experience in handling potentially complex transactions.