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Frequently Asked Questions
What is Share of Freehold
Please refer to this - https://www.lease-advice.org/lease-glossary/share-of-freehold/ It's important to note that if we enfranchise, we'd have to first buy the freehold and then conduct a Deed of Variation to amend the ground rent clause for the enfranchised members only. The Deed of Variation will still need lawyers to draft it, so it'll cost us more. Without the Deed of Variation, we'd get a share of the freehold but still be legally obliged to pay ground rent as the terms of the lease wouldn't change until we enact the Deed of Variation!
Who is our Freeholder?
Our freeholder is Emerald Ground Rent Trustees Limited. Living City Asset Management Ltd act as their Agent and collect the ground rent. Note: this is a different legal entity to the Living City company that used to be our building manager, before we obtained RTM and removed them. RTM is explained on the front page of our website so please reread it if you are unfamiliar with this term.
What is an Onerous Ground Rent Clause?
We think our ground rent clause is onerous. An onerous clause is one where the ground rent terms are disproportionately high or burdensome. In our case, it's the fact that our ground rent's review period is five years that mortgage lenders take issue with, especially where people try to sell their flats for less. Ironically, the more you reduce the asking price, the more a lender is going to think "how can this buyer afford a flat where the ground rent increases every five years, if they can only afford a flat that's this cheap?" Even if your flat's asking price is high, it's still a struggle to find a mortgage lender who wants to lend on our flats while we have this five year review period. Please reread the front page of our website for details.
How many people need to agree to extend a lease?
There is no minimum number of people needed to extend a lease under the statutory process - this is because a lease extension is an individual thing. You're only extending your own lease. We're just trying to do it at the same time so that we can share the costs and achieve savings (e.g. we've managed to negotiate legal fees with a solicitor if we all use the same one/we can all share the Valuation cost together).
What is a tribunal?
A tribunal is a judicial body. Either a lease extension OR collective enfranchisement can go to tribunal, if both parties cannot agree on the value of the freehold. Tribunals are costly and each side pays its own costs, so it's not in either party's interest to get to this stage and the freeholder would have to demonstrate solid reasoning for why they feel our valuation, even after negotiating, isn't adequate. We think it's very, very unlikely that we will go to tribunal.
Didn't we get an offer to buy the freehold?
When the building was first handed over, we did receive a letter stating that the freehold was up for sale. Leaseholders must always be offered the freehold first when it is put on the market. However, the timing and manner in which this was done is a common tactic amongst freeholders, as leaseholders are not organised and are not in a position to act. At the time, the valuation was £1.4m (c.12k per flat). Our current freeholder could put the freehold up for sale again tomorrow. It's a valuable financial asset because it's a guaranteed income stream which we're all locked into paying. If we extend our leases or enfranchise, we remove the ground rent.
Can leaseholders still sell their individual flats if they own the freehold
Yes, owning a share of freehold does not restrict leaseholders from selling their individual flats (although it can make the process slightly more complex as you'd have to assign your share of freehold to your buyer).
How long does it take to purchase the freehold or extend a lease under the statutory process?
Between 12 to 18 months
Is this the same thing as the RTM?
No. Right to Manage (RTM) is where you have the right to manage the building and control the service charge. The RTM is a limited company with its own Directors and that is the company that you are currently paying your service charges to. The Directors of the RTM are not leading this ground rent project - I'm doing this independently because someone needed to do the work and I felt that we really need to solve this issue! Now, back to the RTM. It's really important that you understand how this impacts on this project. Without RTM, a building's Freeholder has control over service charges and the maintenance of the building, and we'd had bad experiences with managing agents like Living City, who were escalating our service charge without servicing the building properly. Escalating service charges are a huge issue across leasehold flats (most flats are leasehold across England and Wales). Many leaseholders buy their building's freehold so that they can get control over their service charges. For us, we already have control over the service charge through the RTM, which means that we can consider either a lease extension or collective enfranchisement. Ordinarily, if you just did a lease extension without RTM, you'd be solving the ground rent issue but still have the service charge issue, so you'd want to collectively enfranchise to kill those two birds with one stone. In our case, we have RTM, so we should consider extending the lease as a serious, viable option.
Do you still have RTM if you extend your lease or buy the freehold?
If you extend your lease: The RTM stays the same, as does your freeholder. The only thing that changes is that you eliminate your ground rent and reduce it to a peppercorn amount. If we collectively enfranchise: I've done further research and the RTM company cannot be the limited company that buys the freehold - it'd completely change the nature of the RTM company and we'd have to amend its articles of association, etc. We'd have to set up a separate limited company for this. If we enfranchise, I think that we'd have to probably get rid of the RTM company and change it to a managing agent arrangement. This is because enfranchised members have voting rights as they jointly own the freehold. In theory (although I know we haven’t been doing this), in a RTM all members should have voting rights. If we enfranchise but continue with RTM, unenfranchised members would have the ability to influence the management of the freehold despite not owning it. This naturally creates problems for those who do own the freehold (I.e. enfranchised members). At this stage, I don't know what this would look like and how the freehold company would pay the RTM company, contract out management services, collect service charge, etc. This is something I think I'd have to discuss with a solicitor, and this will likely add to our costs. So we should consider this when we think about enfranchisement - it will be complex and more expensive.
Is it more expensive to extend a lease or buy the freehold?
Remember, the Valuation only tells us how much the Premium will cost (Premium = the money we have to pay our freeholder to compensate them for taking away their ground rent). An enfranchisement could be more expensive as you have to pay the full cost of the freehold. If the Valuation determines the Premium to be, let's say, £1.2m, and we only have 51 participants, we'll each have to pay around 23.5k, covering the cost of payments for even the unenfranchised members. We haven't managed to get 100% of flats to sign up to this project, so we know that we will have to pay more to cover the unenfranchised members' portion. The unenfranchised members would theoretically pay enfranchised members back in the future when they make ground rent payments to us over the decades (provided the government reforms don't finally surface and cap this amount). In an enfranchisement, we'd also have to pay for the cost of setting up a limited company. This is unlikely to cost much, but I'll have to look into if a freehold-owning limited company needs liability insurance. We'd also need an accountant or a trustworthy volunteer to act as one and file annual reports etc. In a lease extension scenario, you're only "depriving" our freeholder of your ground rent. This is because a lease extension is an individual act - it's you carving out your individual ground rent. In collective enfranchisement, you're taking the entire freehold from them, so a lease extension can be cheaper as it's supposed to be you paying your own individual portion only. In an enfranchisement scenario, our Valuer has also advised that our freeholder could argue that we are depriving them of any future development potential (i.e. the ability to put additional floors on the property. While this is unlikely, they can make the argument). In a leasehold extension, they remain the freeholder, so they can't make this argument. While we should weigh up the pros and cons of both options, given that we already have RTM our aim here is really to eliminate the ground rent clause and make our properties more mortgeable. We should really consider what is most cost effective and efficient for that purpose.
​How much more valuable will my flat be if I extend the lease vs buy the freehold?
PLEASE READ THIS SECTION SUPER CAREFULLY. I want to be very, very clear to everyone: I am merely looking to solve the issue of the mortgageability of our flats and I can't give you a prediction of the value of your flat with or without this ground rent issue. That said, given that so many lenders aren't even willing to mortgage our flats and some of their surveyors have assessed our flats as having zero value, we can't even talk about value if our properties aren't mortgeable. The issue here is this: you might find a buyer who is willing to buy your flat, but if they can't get a mortgage, you're stuck. The only option you have is a cash buyer, who is going to ask for a significant reduction to buy your flat with cash. The last flat that sold in the building to a cash buyer went at a 100k loss. The lender's assessment of the value of your flat is dependent on a number of things, such as: What is the general market value of flats being sold in the area? All lenders will send a surveyor to assess the value of a flat before they lend on it, to ensure it's adequate security for a mortgage loan. The surveyors look at the price that flats in the area were sold at within the last 12 months only. So, if flats in the nearby Icon Building are selling for far less, we'll have a problem. That said, if we can resolve the ground rent issue so that more lenders are willing to lend on our flats, hopefully our buyers can "shop around" a bit more than they currently can, where they're just having the door shut on them constantly from lenders. It's also not unheard of for a lender to assess a flat's value at lower than the asking price and the buyer then coming up with the extra cash to cover the difference in value. The issue right now is that the lender's assessments are either zero or they're just not lending with a 5 year review period at all. If we can establish better sales within Valentines House, we set a healthy precedent for everyone and are much more likely to see more residential sales What is the general market like for flats across London? Flats in general have underperformed house price growth across the city. I don't want people to buy into this project ONLY because they think that either a lease extension or share of freehold will make our flats instantly more valuable. Maybe it will, maybe it won't. All I know for certain is that right now, we're stuck with flats that are very difficult to sell because people can't get mortgages. In my opinion, I think that any flat is going to have greater value if it's more mortgeable, because your pool of buyers narrows so dramatically when people can't get mortgages on your flat. From experience as someone who has lived in the building, I know that people (often existing tenants) do want to buy. The area does actually have high demand, there's a national housing shortage, and our flats are far superior to anything else in the area. The other developments are either shared ownership of rental only developments, and the only other building that isn't is the Icon Building, which looks awful and isn't as desirable as Valentines House. I did manage to get a buyer who wanted to buy my flat (2 bed penthouse with a parking space) at 475k. She just couldn't get a mortgage. Please note however that I am not here to advise you on your own investment or to give you financial/legal advice. Only you can assess all of your options and I'd encourage you to fully grasp this issue. Take advantage of the free leasehold advisory service.
What are the full costs involved?
Our own Valuation: (total fee across everyone: £7050) + minor admin fees Premium (see definition above): Unknown at this stage but it will be in the thousands each. We may see some people drop off from this project once they see the cost involved Our own legal fees: Dependent on participants and lease extension, but we've negotiated these down. In summary, I think that these will be a max of £2500 - 3k each. I will get confirmation of the exact amount after the Valuation, as by that point we'll know how many flats are actually participating The freeholder's Valuation fee - This must be reasonable and they have to use an independent surveyor The freeholder's reasonable legal fees - These must also be reasonable. Our current Freeholder is a professional so they'll be familiar with this process Possible additional costs: If we get into a negotiation with the Freeholder over our Premium, we'd have to pay our Valuer more. We will achieve serious economies of scale here by sharing our costs, but again, it's worth considering if we want to elongate this negotiation. We'd also have to pay more if we disagree over the Premium so much that we go to Tribunal. This is highly unlikely however as our freeholder is professional and will want to avoid this as much as us (each side pays their own Tribunal costs)
Aren't there some lenders who will lend on a five year review period?
Many lenders won't lend on a property with a ground rent review period of five years. You can see the full list of lenders and their ground rent criteria in the Lenders' Handbook, but keep in mind that some of them might accept a five year review period, but don't like Valentines House as they see it as an "investor-led building" (e.g. Barclays). Please also read our guide to selling, which highlights some of the other issues with lenders.
Is freehold the same as share of freehold?
No. A freehold flat is one without a lease/freeholder and are generally extremely hard to obtain mortgages on. Banks don't like pure freehold flats because they worry that without a lease scenario, there's no one else who is jointly liable for the maintenance of the common areas of a building (and flats are always in buildings with common areas). A share of freehold flat is one that's described in the The Solution section above. It's one where you still have a lease and other people are also liable for the common areas, but if you're a share of freehold leaseholder, you also have a share in the building's freehold. Share of freehold doesn't cause issues with banks. Please also read the FAQs for answers to other common questions.