Residential Property Solicitor, Charlotte Ribbons, discusses the advantages and disadvantages of buying the freehold to a property.
A freeholder owns the building and land outright, whereas a leaseholder only owns the right to live in their property for a set term. The Leasehold Reform Act 1993 gave qualifying owners of flats
in a building the opportunity to collectively purchase the freehold of the building from their Landlord. Many leaseholders will relish the thought of being able to say goodbye to their Landlord, however this is not a decision to be taken lightly and the following should be considered:-
Advantages:-
- A lease is a depreciating asset. As the term decreases so does the value. The main advantage of owning the freehold is usually when it comes to extending your lease you eliminate the need to pay a premium. This can be a significant saving. At the same time as extending your lease and you can take the opportunity to modernise and fix non-lender compliant defects in the lease which can lead to enhancing the value and marketability.
- Greater control over how maintenance of the building is dealt with. This can include renegotiating current contracts to get the best deals and choosing when repairs are carried out which usually leads to a reduction in service charge.
- Deciding to ‘self-manage’ and having a ‘non-profit’ management company, can eliminate expensive administration fees and avoids being overcharged for repairs.
- Ability to remove the need to pay ground rent which can be reduced to a ‘peppercorn’.
- Owning a share of the freehold can make the property more attractive to a future buyer.
Disadvantages:-
- Being responsible for the management of a building is a complex task. There are a host of legal and regulatory matters to consider such as asbestos and fire risk assessments. A Management Company could be appointed to overcome this, but ultimate responsibility will lie with the freeholders.
- The burden of administration tasks such as filing accounts and annual returns can be extensive. Not meeting these obligations could lead to fines.
- Disputes between co-freeholders are common. It can be difficult to all agree on a plan of action and can often lead to inaction. It can be a tricky situation to chase late payers when they are also your neighbours.
- Undertaking maintenance and repairs on an ad hoc basis can sometimes lead to spikes of large payments becoming due in a lump sum.
- The acquisition of the freehold can be costly and time consuming. If resistance is met costs could be increased further.
