The procedure for both is broadly the same so I will try and keep it simple!
What will it cost?
PROBABLY A LOT LESS THAN THE “VALUATION” THE FREEHOLDER ASKS YOU TO PAY!
It is normally possible to get very significant reductions on the initial price offered so always get a statutory valuation carried out so that you can see if it is a reasonable offer.
WHO CAN BUY THE FREEHOLD / EXTEND THE LEASE?
ANYONE IF THEY OWN THE LEASEHOLD INTEREST.
If you have owned the property for at least two years you can negotiate the price based on the Statutory Procedure (explained below) which will make it cheaper but anyone who owns the lease can ask the freeholder to do so at any time.
Do I need a lawyer?
YES, AND A SURVEYOR WHO KNOWS HOW TO VALUE THE COST OF BUYING THE FREEHOLD AND THE LEASEHOLD.
We have seen cases where the transfer of the freehold to the buyer contains covenants (which are legally binding promises) to perform all of the covenants in the lease as if they were set out in full in the transfer.
What does the Statutory Procedure mean?
Parliament granted a right to the owners of leaseholds to be able to buy the freehold or to extend the term of the lease. This right is required because otherwise at the end of the term of the lease, the lease ends and the freeholder gets the property back. This was felt to be unfair for the leaseholders. It was also considered unfair to allow the freeholder to ask for any amount that they wanted. The leaseholder cannot buy a different freehold instead – they need their freehold. As such free-market conditions do not apply. Parliament, therefore, sets down in a Statutory Instrument (hence the name) the procedure and the calculation of fair compensation for the landlord.
Are the terms negotiable?
Yes although if there is not an agreement then it is possible to serve notices and follow a very strict time procedure to ensure that the courts can determine the price payable. Usually, the freeholders will reduce the price that they are asking for to just above this level, hoping that the leaseholder will not incur the additional costs and time needed to follow the statutory route.
Leases?
So what is different with extending leases? The procedures are broadly similar (except in the technical points in how notices are served) but you should note that a statutory extended lease will have a ground rent of zero. Yes, nothing. For the whole term.
Can I sell my house whilst I am doing this?
Yes. It is a little more complicated so you need a lawyer who knows what she is doing (shameless plug for Toomey Legal here!). As long as the procedure has been started then the benefit of that can be sold with the property so that your buyer can complete the purchase of the freehold/extension of the lease. The problem is normally that the buyer needs a mortgage and if there are less than 60 years left on the lease the property may be hard to get a mortgage on. Even in these cases, however, it only needs to be finalised at completion so the process can be ongoing whilst you finalise the other steps that need to be covered for your house to be sold.
How long will it take?
A long time! The freeholder does not have to do anything faster than is reasonable. There are some freeholders who take two months to respond to the initial correspondence. As you need to negotiate (unless you start on the statutory procedure route) then if you look too keen to get on with it, they will not offer you the best price. Patience is definitely needed. As a general rule of thumb, we say between 4 and 6 months to buy the freehold/extend the lease.
Registering your title
After you have bought the freehold or extended the lease you will need to register it at the Land Registry. A lease extension will be registered within a couple of days but the freehold purchase can take up to another six months for the Land Registry to finalise it. Where it is a transfer of part (so when the freeholder has one title number for the estate) then the Land Registry needs to have someone look at the transfer carefully to check that the transfer is correct.
If you have a sale agreed, then we can ask for the registration to be expedited and it is normally completed within a week or so. Otherwise, you just have to wait until the Land Registry gets to it. If the freehold of your property already has a separate title number, the registration will take a day.
How much does it cost to buy a freehold?
As well as the premium, or the actual cost of buying the freehold/extending the lease. There will also be legal fees payable to the professionals who help you. At Toomey Legal, we charge £400 plus vat for buying the freehold. If we need to serve notices and proceed on the statutory route, which we normally do on lease extensions, we offer a complete fee of £995 which covers all registration costs, vat, and other legal disbursements. We have an agreed fee with an expert surveyor to carry out the statutory valuations of £200 plus vat. If he needs to negotiate more than this there may be some additional charges of up to £300 plus vat.
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