Is it worth buying the freehold to your flat?
If you’re the owner of a flat or apartment, then it’s unlikely you own the freehold to the property. Along with your mortgage and bills, you’re probably also paying ground rent to the owner of the freehold. Sometimes, the ownership of the freehold is available to purchase - but what are the pros and cons when it comes to buying the freehold?
What is a freehold property?
First things first, it’s important to fully understand what the freehold of a property is. In simple terms, it’s basically the permanent and absolute ownership of property or land. If you’re the owner of the freehold, it means that you own the building along with the land that it has been built on.
What is a leasehold property?
Most flats and apartments are leasehold properties, and if your property is a leasehold then it means you own the property, but not the land, for the length of your lease agreement with the freeholder. This lease agreement is put in place so that you can own and use the property for a set number of years until the lease expires. These leaseholds are usually set over a long term - often 90+ years, but they can be as high as 999 years.
What does it mean to buy the freehold?
If you’re a leaseholder, you’re entitled to ask the landlord to sell you the freehold at any time. Law dictates that if a landlord wishes to sell the freehold, they must offer all leaseholders first refusal to purchase it.
Buying the freehold isn’t quite as straight forward as just agreeing a price and paying it, though - in order to qualify you must get your neighbours on board as well. By law, at least 50% of the leaseholders within the building must come together to purchase the freehold.
At the end of the freehold-buying process, all purchasing owners would:
- Collectively own the freehold of the building (this is often done by forming a limited company that’s owned and controlled by the property owners).
- Individually, each owner would still have a long lease - however, instead of this lease being from the old freeholder it would now be from the new entity that has ownership of the freehold and that you and your neighbours now have total control of.
Jointly owning the freehold with your neighbours will mean that you have the power to collectively set the ground rents, take out the best insurance deals and generally be in control of your own destiny. You can also extend your lease with the only cost incurred being the legal fees.
How do I know if I am eligible to buy the freehold?
There are a few requirements that need to be met for a group of leaseholders to be able to buy the freehold of a property. There are outlined below:
- The property must contain at least two flats.
- Only a maximum of 25% of the freehold building can be used for non-residential purposes, such as shops and offices.
- At least two-thirds of the flats must be owned by leaseholders who own long leases (originally granted for at least 21 years).
- At least 50% of the flats in the building must be owned by leaseholders who agree to buy a share of the freehold. It’s worth noting that if there are only two flats in the property then both owners must agree to buy the freehold.
How much does it cost to buy the freehold of a property?
Just like the price of a property, the price of a freehold can vary. However, the shorter your lease then the pricier your freehold will be.
To buy your share of the freehold, you will incur costs such as:
- Your share of the purchase price of the freehold
- Surveyor costs for an accurate freehold valuation to be carried out so you avoid overpaying
- Legal fees for the leaseholders
- The legal and valuation fees of the freeholder
- Any stamp duty land tax that might be payable (for properties with a purchase price above £125,000)
What are the benefits of buying the freehold?
- You will have free leasehold extensions, and can usually extend the lease to 999 years at no extra cost other than the legal fees
- You can control the service charges you pay by choosing value-for-money providers
- You normally won’t have to pay any ground rent
- You will have few conditions to follow as you won’t need the permission of a freeholder (such as permission to let the flat or to own a dog etc.)
- Buyers generally prefer freehold properties, so this can add value to your home
Here at CPS Homes we’re proud to be Cardiff’s largest lettings and estate agent, so whether you’re a landlord, tenant, buyer or seller, we have the expertise to deliver exactly what you’re looking for from the property market. Get in touch with us today by calling 02920 6668585, e-mailing enquiries@cpshomes.co.uk or by popping into one of our three Cardiff branches.
