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Advantages to purchasing Freehold

Covering Market, Trends, and Practical (but see LEMON-AID for Building & DIY)
Mike4
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Re: Advantages to purchasing Freehold

#389024

Postby Mike4 » February 23rd, 2021, 8:51 am

pochisoldi wrote:A distinction needs to be made between "ground rent" due under the terms of a lease, and "rent charge" which may be payable on freehold land (sometimes also referred to as "ground rent" - especially in the North West of England )

A rent charge can be discharged by paying a fee which is a set formula - IIRC this recently worked out at somewhere around 16 times the "rent".

Don't ask me how you value the purchase of the freehold for a leasehold house. I'd visit the lease-advice website for more info, rather than assuming that the rules for flat lease extensions/freehold enfranchisement apply.


The OP specifically states it is a lease of 999 years so the ground rent probably is exactly that, as opposed to a misnamed rent charge. But on the side issue of rent charges, I've never understood the basis of them but you seem to know about them - could you briefly explain how they come/came about to be chargeable on freehold land please?

And whilst re-reading the OP I note they used a couple of rather odd turns of phrase - they say they "live in" this property rather than "own" it, and they "get" an offer annually to buy the freehold. I'm now wondering if they really are the leaseholder or if they are a tenant occupier to whom the offer to "buy the freehold" is being made incorrectly or even fraudulently.

Dod101
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Re: Advantages to purchasing Freehold

#389035

Postby Dod101 » February 23rd, 2021, 9:07 am

The 'rent charge' on freehold land sounds a bit of a contradiction but it also sounds like the old feu duty that used to be a feature of Scottish properties.

Ground rent is of course a standard term with leasehold property.

In Scotland feu duty used to be payable to the land owner who granted permission for someone to build a house on his land and was payable in perpetuity. In all other respects the property was freehold. The feuar did nothing in return for getting the feu duty which was payable and dated back to the old 'lord of the manor' type of situation although in Scotland it was more like the old clans.

It was abolished some years back by payment of a modest multiple of the annual feu duty, and now most properties in Scotland are indeed freehold in practice.

Dod

dealtn
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Re: Advantages to purchasing Freehold

#389053

Postby dealtn » February 23rd, 2021, 9:39 am

james51 wrote:I am in a similar position. The terms of the lease on the property (a detached house) say that I need to get the freeholder's permission to change the exterior of the house (e.g. build an extension) in addition to planning permission. That could be quite inconvenient, as I have no idea what criteria he would apply for accepting or not. The annual cost of the lease is trivial and there are no service charges.


Is the freeholder still the same? it's not uncommon for the freeholder, and potential beneficiary of restrictive covenants, to have been the original developer. Many get taken over, but many also go bust. Those that go bust effectively the restrictive covenant goes to the crown, and in practice gets dissolved. Your technical obligation may no longer exist.

If/when you extend or later sell, insurance policies for quite trivial outlay, can resolve such concerns.

So check your deeds and investigate who exactly holds any restrictions over your property to judge how much of a potential issue this is in practice.

Dod101
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Re: Advantages to purchasing Freehold

#389094

Postby Dod101 » February 23rd, 2021, 11:08 am

At the back of my mind, I feel that restrictive covenants (at least in Scotland) fall away after some years but I might well not be correct. Nowadays I am out of touch with the property market and am unlikely to move again.

Dod

Andy46
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Re: Advantages to purchasing Freehold

#389284

Postby Andy46 » February 23rd, 2021, 5:53 pm

Thanks for the answers so far.

Apologies. I live in a semi-detached leasehold house which I own with a mortgage. I mentioned I have no plan to extend the property as I understand that to do this I would need the freeholders permission so I believe if I were thinking of extending it then it may be a good idea to purchase it.

tjh290633
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Re: Advantages to purchasing Freehold

#389316

Postby tjh290633 » February 23rd, 2021, 8:04 pm

A friend of mine, who was an estate agent, spent a lot of time in the mid-1960s buying Ground Rents in decaying areas around Manchester. They were all probably 999 year leases at very low rents. In a few years they would all be demolished and he owned the land, ready for redevelopment.

About the same time we lived in a leasehold property in Rochdale, and the Leasehold Enfranchisement Act came in. From memory, we were paying about £5 a year on a 4-bedroom property, and I bought the freehold for about £200. We sold about a year later for £4,800 when we moved south.

If the property is a house and the lease is just on the land on which it stands, I would buy it without hesitation.

TJH

Clitheroekid
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Re: Advantages to purchasing Freehold

#389368

Postby Clitheroekid » February 23rd, 2021, 11:13 pm

tjh290633 wrote:A friend of mine, who was an estate agent, spent a lot of time in the mid-1960s buying Ground Rents in decaying areas around Manchester. They were all probably 999 year leases at very low rents. In a few years they would all be demolished and he owned the land, ready for redevelopment.

This is one of several misunderstandings on the thread (apologies for the late arrival, but I never usually visit this board).

If someone owned a leasehold house with, say, 900 years left on the lease it might then have been worth, say, £5,000. Your friend buying the freehold would have made no difference to the house owner, who would simply have paid the £1 a year ground rent to your friend instead of the previous freeholder.

If the council then decided to demolish the house they would have either negotiated with the leaseholder for the purchase of his interest or perhaps issued a compulsory purchase order.

Either way, the leaseholder would have received the £5,000 value of the property, and the freeholder would simply have received the value of the freehold, which would almost certainly have been about the same as he paid for it.

Mike4 wrote:
james51 wrote:I am in a similar position. The terms of the lease on the property (a detached house) say that I need to get the freeholder's permission to change the exterior of the house (e.g. build an extension) in addition to planning permission. That could be quite inconvenient, as I have no idea what criteria he would apply for accepting or not. The annual cost of the lease is trivial and there are no service charges.


If a person more avaricious than me was your freeholder they might be thinking of all manner of ways to make money from you. E.g. charging you say 10% of the projected build cost of any proposed extension. Or a few £k for permission to sell, or for an account showing your ground rent is paid up to date to show your buyer's lender. These are the ways freehold investors squeeze healthy profits out of the leaseholders trapped in their investments.

Although you’re right to some extent, in that many freeholders are avaricious vultures they don’t just have carte blanche to charge what they want.

For a start, the freeholder can only exploit covenants in the lease to the extent that such covenants actually exist. No lease of a standard domestic house contains a covenant requiring the landlord’s approval to a sale (some retirement homes do, but that’s a different matter) and so far as charging for things like a receipt are concerned any leaseholder can apply to an independent tribunal to have such charges assessed for fairness.

AsleepInYorkshire wrote:However, a leasehold period of 999 years usually applies to shared properties, namely flats or if you prefer apartments.

No, it’s entirely the opposite. Most flats are let on relatively short leases – 125 years is very typical - whereas nearly all houses are let on 999 year leases.

dealtn wrote:Is the freeholder still the same? it's not uncommon for the freeholder, and potential beneficiary of restrictive covenants, to have been the original developer. Many get taken over, but many also go bust. Those that go bust effectively the restrictive covenant goes to the crown, and in practice gets dissolved. Your technical obligation may no longer exist.

You’re confusing restrictive covenants on a freehold house with covenants in a lease.

It is quite common for freehold covenants to be imposed by a developer that is subsequently dissolved. The benefit of the covenant does not go to the Crown or anyone else. The covenants are simply unenforceable.

Leasehold covenants are enforceable by the freeholder, and the fact that they also have the right to collect ground rent gives the freehold a financial value. It’s therefore exceptionally unusual for a freeholder to go bust, as even if they were insolvent the freehold is a valuable asset and would be sold by the liquidator.

So having hopefully cleared those points up it’s time to address the original question!

Andy46 wrote:Hi,

I live in leasehold property. The lease was for 999 years and has about 880 years left. The ground rent was set at £2.30 a year (it takes me a while to save up for it each year :lol: ) I get the offer to buy the freehold from the current freeholder for about £600 every year, is there any point whatsoever to purchase it? I'm never planning on extending the property btw.

In general terms there’s very little economic justification for buying the freehold. This was particularly the case when we had normal interest rates instead of the Alice in Wonderland world we now inhabit of zero / negative rates.

I used to say to people in this situation that they could put the £600 in the Skipton (other savings institutions are available!) and draw £30 a year, so why spend the money to save less than a tenth of that.

Obviously, that argument no longer applies, but you’re still spending £600 (plus, possibly legal / Land Registry fees, depending on the deal offered) to save a trivial sum.

You have to bear in mind that it will now be costing the freeholder more to collect the ground rent than it’s worth, with the postage alone costing 65p for a second class stamp. Many freeholders of such houses have therefore ceased to collect the ground rent at all.

It’s very unlikely that owning the freehold will enhance the value of the house. In areas where such titles are common (there are many in Lancashire, for example) solicitors and estate agents are entirely used to them, and the remainder of a 999 lease is just as marketable as a freehold.

One possible advantage of buying the freehold is to get rid of onerous covenants in the lease, such as one requiring consent for alterations. However, these are fairly rare in leases that are over 100 years old.

In fact, the real reason for selling houses as leasehold in those days is that there was no planning legislation. Consequently, if you bought a house you could immediately open it as a slaughterhouse or tannery. Covenants in freehold titles can be difficult to enforce, but those in a lease are very simple to enforce. They were therefore, in effect, a private planning system to ensure that a residential development remained as a residential development.

And even if you do agree to buy the freehold you need to be careful. I’ve had clients who agreed to do so and were told they didn’t need a solicitor as the freeholder would deal with all the paperwork. The freeholder then sneakily inserted restrictive covenants in the transfer of the freehold so they ended up no better off!

As the freehold has effectively no monetary value because of the cost of collection it might be worth offering them, say, £100 for it (on the basis, of course, that the transfer would be free of covenants). They might take the view you were doing them a favour, and agree. You’d probably have to register the freehold title yourself, but it’s not that difficult.

Finally, I should add for the sake of completeness that anyone who has lived in their leasehold house for at least two years can force the freeholder to sell them the freehold. If a price can’t be agreed it will be determined by an independent Tribunal, and I’ve had cases where they have assessed the value at zero, simply because of the cost of collection.

Unfortunately, however, the procedure is absurdly complicated for such a low value transaction, and as you have to pay the freeholder’s reasonable valuation and legal fees it’s not usually worthwhile.

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Re: Advantages to purchasing Freehold

#389373

Postby mc2fool » February 23rd, 2021, 11:39 pm

Clitheroekid wrote:You have to bear in mind that it will now be costing the freeholder more to collect the ground rent than it’s worth, with the postage alone costing 65p for a second class stamp. Many freeholders of such houses have therefore ceased to collect the ground rent at all.

One approach by some is to bill less than annually. My mum's place (now sold, a couple of years back) had a ground rent of £10pa and the freeholder would send her a bill for £30 every three years. Indeed, I am a bit surprised that the OP is billed each year for just £2.30....

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Re: Advantages to purchasing Freehold

#389374

Postby Lootman » February 23rd, 2021, 11:43 pm

mc2fool wrote:
Clitheroekid wrote:You have to bear in mind that it will now be costing the freeholder more to collect the ground rent than it’s worth, with the postage alone costing 65p for a second class stamp. Many freeholders of such houses have therefore ceased to collect the ground rent at all.

One approach by some is to bill less than annually. My mum's place (now sold, a couple of years back) had a ground rent of £10pa and the freeholder would send her a bill for £30 every three years. Indeed, I am a bit surprised that the OP is billed each year for just £2.30....

Or, as in the case of the last leasehold place i owned, that I sold 30 years ago, the freeholder never asked for the ground rent at all in 7 years, but filed a claim during the conveyance for the sale backdated for the entire period.

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Re: Advantages to purchasing Freehold

#389392

Postby JohnB » February 24th, 2021, 6:43 am

One reason to buy it is that a leasehold semi will put off a fraction of future buyers. I'm sure clitheroekid is talking sense as usual, but it would be a red flag to me as I know so much less about it. If its common practice in your area perhaps buyers expect it, but its best not to be different.

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Re: Advantages to purchasing Freehold

#389409

Postby Wizard » February 24th, 2021, 8:08 am

Mike4 wrote:
mc2fool wrote:
Mike4 wrote:The 999 year long lease plus the low low premium being asked for the freehold screamed "1960s or earlier flat" at me.

Interesting deduction. :P More reliably, as the OP said they have 880 years left on their 999 year leasehold, we can fairly reasonably infer that the property (flat or not) was built in or before 1902. :D


Yes that too! ... AND, the ground rent of £2.30 a year. Even had the OP not mentioned 880m years left on their 999 year lease, this £2.30 a year with no provision for inflation uplifts also screams 'very old lease' to me.

Edit to add: I once owned a freehold (Victorian) house upon which I paid a "rent charge" of £1.30 a year. I never quite understood how they came to be entitled to collect the £1.30 a year from me but collect it they did! This was in a tightly defined locality with perhaps 5,000 other all built by (I think) Suttons Seeds so I guess they all had the same provision. A useful income if you have the time and inclination to collect it.

I bought the house out of the obligation for the princely sum of twenty seven quids.

My bold.

Healthy period left :P

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Re: Advantages to purchasing Freehold

#389889

Postby Charlottesquare » February 25th, 2021, 10:51 am

Dod101 wrote:At the back of my mind, I feel that restrictive covenants (at least in Scotland) fall away after some years but I might well not be correct. Nowadays I am out of touch with the property market and am unlikely to move again.

Dod


There have certainly been reforms of Real Burdens over the last 17 years or so.


https://www.lawscot.org.uk/members/jour ... -dead-yet/


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