Share of the freehold

[Grampa]

I was wondering what value (if any) do you guys put on buying a flat that would have a share of the freehold and if it is important to you?

[Mortitia]

I would not consider buying a flat unless it had a share of the freehold.

More and more I am coming across flats for sale where some scammy management company have bought the freehold and charge leaseholders unfair amounts for insurance, consent to let their flat, repairs/cleaning, renewal of lease and charges in general. No investor or other would want to be in that situation but it is becoming common as a way to generate cash.

[Grampa]

Thanks for that Mortitia. Have you suffered any problems with the self (owner) managed blocks such as where you cant get agreement on issues or difficult and or non paying (service charge) owners?

The reason I ask is I have had a offer accepted on a flat that has a share of the FH where on my previous ones the FH wasn't included. The service charge is only £30 pcm which I think is too low. The exterior of the building appears to be looked after ok but I haven't seen any accounts yet.

I think the point I'm trying to make is an independent Freeholder can come down a bit tougher on difficult leaseholder where a small self managed block may possibly be more probmatic (but a lot cheaper).

[Richlist]

I don't own any of the freeholds on any of my flats and never have.

My service charges vary from £678 pa to around £1200 pa but the service on all of them is excellent.....all the usual stuff, well maintained gardens, regular exterior decoration, common areas cleaned etc. OK, we have to pay for permission to let, permission to make alterations (eg new windows/ doors), permission if you want a cat or dog (I don't) etc but overall it seems good value for money when compared to some of the problems that having a share of the freehold can produce. The freeholders respond quickly to requests for maintenance, emergency work or reports of problems.

I don't know how it would be possible for a service charge of just £360 a year (£30 pcm) to provide a satisfactory service......buildings insurance, exterior maintenance, gardens/ grass cutting, common areas etc. The lowest service charge I pay is £56.50 pcm and thats where we have the estate (96 properties in total) run by a committee of leaseholders (about 6 or 7 people) who work very hard to get value for money & keep costs to a minimum. Costs can depend on the age of the properties. The ones I refer to are now about 30 years old so there are regularly large expenditures......eg tree maintence, flat roofs resurfaced, higher maintence costs of common areas etc

I know that no two leases are the same and the devil is in the detail but I'd go thru the lease and the last 3 years of accounts very carefully to see how its been done/ what hasn't been done up to now.

[Grampa]

"I don't know how it would be possible for a service charge of just £360 a year (£30 pcm) to provide a satisfactory service......buildings insurance, exterior maintenance, gardens/ grass cutting, common areas etc."

This is my major one concern also. There is no garden maintenance and the property is a small block of 8 flats with parking round the back and a small communal hallway.

I do manage a handful of small blocks as managing agent so have a good understanding from that end of cost and overheads and I need to check there are no major/expensive jobs coming up that haven't been taken into consideration. I have no problem paying my share if a large bill was presented but what happens if one or 2 LH don't or cant pay? Maybe I could offer my services on the cheap to manage and budget then put the SC up. That would please them.

Having a stab at the overheads I would say.

£2880 income (fact)

estimates

1250 Insurance (there is a possibility this is billed separately)

500 Window clearing

125 electric for common area

500 Cleaning for common arrears.

That only leaves 500 quid and there is bound to be a few extras out of that of that also. The last few years of accounts to see I think is a must.

Richlist and Mortitia when you brought your flats did you get a survey? If so was it a basic one or more detailed?

[Richlist]

Your post raises a few extra points worthy of discussion.

* My experience of paying service charges to managing agents/freeholders is that part of the annual service charge goes into a number of reserve funds that are designed to ensure money is already available when larger expenses such as e.g. exterior decorating, are carried out every 4 years or so. I suspect that many self run freeholds don't always do this and end up with a nasty surprise when they have unexpected or unplanned work that needs doing.......hence the lower charges.

A side issue to this is that on more than one occasion the vendors have tried to get me to pay extra for the property on the basis that the vendor has contributed, over a number of years, thru their service charges, into reserve funds which the purchaser (me) will benefit from after completion. Its an interesting concept .....I never did pay extra but I've often wondered if others ever have. ....I've never had the nerve to do the same when I've sold property.

.

* Because the flats that I buy are usually quite modern / not very old (30years max) and I'm quite familiar with building issues I like to think I can do the necessary checks myself and ask the right questions......not ideal, not recommended but it works for me and I'm comfortable with that. I have never paid for an independant survey. I do have a friend who is a surveyor who I have persuaded to do me a favour on one occasion but he's usually up to his neck in work or working away from home and so its not really an option for me. I do normally raise a mortgage and that sometimes results in a (very) basic check......but thats it. Again, I think the age of the property can be an important factor. For example, if I was buying a flat in a house conversion of an Edwardian or Victorian property I WOULD definitely have a survey...simply because of the age of the property.

* I have always found that my solicitor goes thru the lease and the last 3 years of accounts and points out anything important. In the past he's highlighted reserve funds, commented on the managing agents and pointed out the odd important factor that I might have missed.

* None of my flat have window cleaning included in service charges.

* Some of my flats do not include cleaning of common areas in service charges.

* AS an example we pay £14425pa for buildings insurance for 96 flats which = approx £150 per flat per annum and is broadly in line with your estimate. Insurance premiums will vary significantly depending on agreed excess.

[Grampa]

You're quite right the detail is in the lease and a lot have clauses such as the exterior and interior need to be decorated every 5 years or so. If there is no reserve/sinking fund I could see it either not being done or you get a big extra bill to be paid in one hit.

[Mortitia]

I inherited one flat 10+ years ago with share of freehold and immediately became company secretary - there are only 4 flats in this block built in 1906. All flats are let.

The building needed re-roofing/gutters/sofits so that was the 1st major expense but my fellow leaseholders were very happy someone had taken things in hand and we put extra cash in to cover the essential repairs. We all pay £600 pa into the management fund. Insurance is £560pa on a rebuild cost of £670,000. This is in SW London.

I file dormant accounts whereas previously an accountant was charging £550 for doing same.

One of the tenants does the cleaning at £35 pcm

We meet annually in September at a local pub.

I pay all the bills and charge £100 for my services

Flat 2 - purpose built 1987 in block of 8 has a managing agent who charges £600 pa. Our fees are £250pa each. We are registered as a 'housing association' so accounts do not have to be strict and AGM not essential. No more than 4 of us ever turn up to the AGM. Just recently we have had disagreements over insurance costs after one old dear went into hospital and her flat flooded due to copper pipe leaks in concrete floors. They all have old boilers - I have combi and no copper in floors so forced them all to accept an excess of £k5 on that type of claim. Agent backed me up. I am a control freak.

Also I manage a few blocks in a large town nearby. Biggest has 18 flats - no they don't all agree and don't all pay their fees - CC application and LBA usually does it. I always come out of the AGM with a headache.

Choose your flat carefully and find out who the trouble makers are - if any. State of block should give you a good idea. Sitting tenants are always a problem as their landlords won't pay up for anything.

In older flats the leases can all be different which is a minefield.

[Richlist]

I've updated my previous post....please read..

[Grampa]

Thanks for your thoughts.

I am quite keen on this property which has a current lease of 50 years which has put off a number of purchasers as they cant get a mortgage on it. It also has a issue with the share of the FH which was never put into the current owners name. This means I have got it for a very good price.

I have been reliably informed by my accountant and solicitor this is not uncommon and not hard to resolve. I have also made it a condition for a lease extension on completion.

[Richlist]

Is it possible now to extend the lease immediately on completion ? I was under the impression that new owners had to wait a while (two or three years) .....perhaps the process has changed ?

No doubt you've already got an estimate of:

* the likely cost of the lease extension and have added it to

* the purchase costs &

* renovation/ refurb costs &

* additional legal costs of the freehold registration issue ?

[Grampa]

Your correct there is a 2 year limit after purchase to do a lease extension but it can be done during the sale process also. I'm not sure of the in and outs of the process but I think it is done between exchange and completion under the venders name but the purchaser pays for the legals.

I did this on my last purchase about a year ago. The legal costs (just for the extension were) £1140 plus 6k premium to the freeholder.

I have being slightly involved through work with a couple of lease extensions where the LH also owned the FH and the cost was as low as £350 each (batch of 4) or £500 for a single one and of course no premium to the FH. I am budgeting 1,500 for this one (plus sale legals)

The property does need redecoration and a little new flooring which I will do, plus new kitchen work tops and I am also going to take the shower out and gut the bathroom and fit new suite with bath with overhead electric shower.

I estimate with all the works legals etc I could flip the property and make a bear minimum of 5k but I am planning to keep it and rent it out for a few years.

[Richlist]

Sounds good.

I guess that in your position occasionally you get to hear of a bargain.

[Grampa]

I think what has happened is the current owner doesnt realise the cost for for extending isnt huge because he has a share of the FH and probaly been told it will cost him 1000's to extend which is normally the case without the FH.

The estate agents were telling everyone the lease was only 50 years which was scaring off most people and if the FH was mentioned the fact that it hadnt been transfered over scared the rest off which means I have a offer accepted about 15% off the advertised price.

If the EA that was originally marketing the property new a bit more about the LH and FH to explain to the vender and potential buyers it would have sold.

[Mortitia]

Once you've bought your share of freehold flat you can extend at any time to any amount of time - 999 years being favourite. Get several quotes if your not expecting your vendor to pay some of the legal cost.

I do not get a surveys done ever - I feel I know enough about building to make a good purchase but if in doubt I ask a builder friend to take a look.

[Melboy]

We all seem to do our own "surveys." I do my own survey as well and any doubts I call in the specialist trade BUT I can tell you now very few people ever call in a heating engineer to report on the boiler and central heating & hot water tanks and controls when buying a property and long may that continue as it provides a lot of work for my Son ......and he has seen some CH/HW installation horror's over the years.

[Richlist]

I can tell you now very few people ever call in a heating engineer to report on the boiler and central heating & hot water tanks and controls when buying a property

That doesn't surprise me at all. I don't think that a heating/ hot water system check is high on a buyers priority check list.

NOTE: A good professional survey can pay for itself when defects are found as the buyer can often use the information to reduce the purchase price of the property. After all, its the same method used when buying other 2nd hand products e.g.cars......find a few things wrong or that need fixing, estimate the cost to rectify and reduce the offer price accordingly. Doing one's own survey might well be a false economy on many levels.

[Mortitia]

A house or flat is way easier to survey than a car IMO. Not so many concealed places in a property as there are in a car nor complex electronics.

My checklist is:-

How often has property been sold in last 10 years and why

Is the property listed or in a conservation area

Are there any boundary disputes or grey areas over ownership

Roof, type and condition inside and out.

Gutters, soffits, downpipes, condition and effectiveness

Brick or blockwork and finish inside and out

Is there a DPC and what type, how old

Windows and surrounds - how old is the DG if it has any

State of joists in roof and floors/signs of infestation including woodworm

State and u value of insulation

Signs of movement inside and out - anything that might affect foundations ie trees, watercourses - look at other props nearby

Last re-wire date

Water supply piping type and date installed

Is there a water meter

How old are gas and electric meters and where are they

Last boiler change date or is it all electric

Waste water and sewerage pipes, condition, location and who owns what

Have I missed anything?

[Grampa]

Perfect just what I need. Many thanks Mortitia

[Richlist]

I think that list is ok...... I'd probably leave a few things off as not important (eg water meter/ age of gas & electric meters) and add a few extras like condition of :

* fencing, paving and any garden structures.

* consumer unit(s).

* bathroom, shower, taps, sealing.

* kitchen overall.

* flooring.

* decor.

* security (locks).

* and does everything function ok.....some of my biggest time & effort in the past has been spent fixing poor DIY or no DIY.

There are IMO different considerations when looking at leasehold vs freehold property.

With leasehold areas such as roofs, gutters, downpipes, soffits/facias, brickwork, DPC, roof joists, sewerage etc are generally the responsibility of the property owner ie the freeholder. It then becomes important to look at age of property, level of services charges, are there any planned large expenditures, are there reserve funds in hand and what are the details, review the last 3 years accounts etc etc.

[Grampa]

Thanks RL I will now add to the list.

I think another visit to the property is coming up this weekend.

[Grampa]

Well I finally completed on the flat just before xmas. The ownership of the freehold was sorted out as due to a solicitors error on the previous sale 10 years ago the FH was never transferred over to my vendor.

The lease extension wasn't done on completion but is in hand now and is being paid out of the service charge reserve which I never contributed to.

I ending up spending 7.5k on the flat which included new bathroom/kitchen, flooring, plastering 2 rooms and a lick of paint. I got a valuation afterwards based on the lease extension being done as well and am looking at 20-25k increase even with all the costs for works and solicitors fees added in so happy days. But it did take the best part of a year from original offer put in and a bit of a gamble over the lease length.

On the down side there is a lot of bickering between the other owners and they struggle to agree which is a good argument for using a managering agent. A couple want to sell so I may have a stab at those if I can get them for a reasonable price.

Oh nearly forgot the new tenant moved in my flat 2 weeks ago.

[Richlist]

The downside with you using a managing agent is that the managers will want to be paid for doing that work. So, your £30 pcm will almost certainly rise. On the development that I'm involved in, our agents who are chartered surveyors charge around £10K per year for the 96 properties = approx. £100 pa per property.

[Grampa]

You get what you pay for. I would be happy to double the service charge if it meant the carpark was weeded regularly and the common areas regularly cleaned and hoovered instead of the owner residents doing it then bickering because not everyone joins in.

[Mortitia]

Congratulations Grampa - that was a long stake out!

Why not consider managing the block yourself? Property management seems to be a growth area at present by people who just want to take money from the leaseholders.

Just ignore the bickering and make strong decisions - that what I do and you don't need to be or employ and RICS person to do it.