Is purchase of freehold fair value?

The amount your landlord can charge for a lease extension is calculated by a legal formula. The starting point is the valuation of your flat which would have to be agreed on by experts, or consent between you and the landlord to a figure. I found using the calculators on the following site produced an accurate leasehold valuation. The following link is free and they are very helpful but the site itself has the answer to masses of questions. Using the calculator figure is not compulsory if you can negotiate a price with the landlord. http://www.lease-advice.org
The Leasehold Advisory Service, is a Non Departmental Public Body (NDPB) funded by Government to provide free legal advice to leaseholders, landlords, professional advisers, managers and others on the law affecting residential leasehold in England and Wales.

link to full facts, very comprehensive and very useful.
http://www.lease-advice.org/publications/documents/document.asp?item=10

I can share my experience / rationale of buying a freehold last year. I have owned the ground floor flat for 15 years and the upstairs flat was for sale, and I bought it. Both flats are purpose built comprising a detached building of just the two flats with gardens and parking. A nice little package.

The flats were worth approx £170k each, on 78 year leases and I was paying £50 a year in ground rent. I received two lots of advice re the freehold:
1. You don’t need such a long leasehold for a buy-to-let mortgage so as long as you’re not thinking of living in or selling one of the flats, keep the money in your pocket
2. You’ll be kicking yourself in 10 years time when you want to sell one or both flats and paying a lot of money to extend the lease.

The freeholder wanted £13k and I ended up paying £10k. Overall, I’m really pleased I bought it however if I was buying it now, I would negotiate harder re your point “surely the lease is of little value to anyone but me?” Saying that, I think it was a fair price.

Paul,
I'll keep this simple.
If your freeholder is giving you the opportunity to purchase the freehold off him, whether it is a 50% share, or 100%, YOU GRAB IT WITH BOTH HANDS..! Such an OFFER, rather than fighting for it, is GOLDDUST.!!
You don't indicate where you are, but certainly £12K does not sound too unreasonable - however, LS's comments above are absolutely correct, so it may actually work out less.
The benefits of purchasing the freehold are several (It's more usual these days to have an equal share per flat rather than a single freeholder - so that you all have equal status/responsibilities - hence my reference to a 50% share). Firstly, amend all the leases to 999 years. Even when you own the freehold, the flats still have their leases so that everyone knows what the terms/conditions, rules/regulations /guidelines are that the property will be run by. Secondly, abolish ground rent. Thirdly, you remove the risk of a future avaricious freeholder in the flat below, or even an absent freeholder, who could make life awkward when you wanted to extend your lease etc. Fourthly, your lease is already down to 74 years. In 4 years time your flat will start to become unmortgageable - 70 years is the threshold that many lenders use. Fifth - your lease is below 80 years - you are already incurring "marriage value" into the costs of extending your lease or purchasing the freehold. This is all to do with the formulae of how much you will have to pay the freeholder. The shorter your lease becomes, the higher the marriage value will be, and the steeper the rate at which it increases. Sixth - the difference in cost of extending your lease, or purchasing the freehold is almost nil.....Need I go on.?
I have been through the process twice personally - both of them in East London. I had avaricious freeholders. Similar set up to yourself, but slightly different circumstances - 2 flats in 1 house, but the freeholder was a big property company. They tried to screw every penny out of me and my fellow leaseholder in the other flat. We got to within 3 days of an LVT hearing before they capitulated and agreed that our valuations were correct. My lease was down to 64 years and I had to pay £21K (2009), my fellow leaseholder still had 82 years so got away with £6K.! It was the best thing we did. We wrote ourselves new 999 year leases etc. as above. The final benefit was this - last year, 6 years later, I actually sold my flat - and the fact that it had 50% share of the freehold made a significant difference to the asking price and also to its saleability - people were falling over themselves for it and it went to sealed bids!
Good luck.

I like Graeme's reply. One big factor is you should do it sooner rather than later as you have missed the 80 year point and are now into marriage value. Property prices seem to be going up and will hopefully, for us, continue to do so. As the cost starts with the value of the property there is no time like the present.

try and negotiate the price down but he does not budge then just accept his offer!

If you use the statutory route then the leaseholder pays the reasonable professional fees (solicitors + valuer) of the freeholder as well. The fees that I have been able to pass onto my leaseholders stretch the bounds of reasonableness, but they get paid!

The new owner is probably (if they have their wits about them) going to want the situation sorted prior to or during purchase as they won't want a 74 year lease. This means their lease will be extended whoever has the freehold thus pretty much reducing its value to you. The sensible thing would seem to be to offer to buy the freehold jointly with the new owner as this will engage them in the upkeep of the building and halve your costs. I think you need to take advice as there are regulations which might apply.

It's possible the new owner will want to buy the freehold along with the flat but he cannot buy it by himself without you being notified.

Thank you everyone for taking the time to respond and share your valuable advice, I really appreciate it.

So, really I have two potential situations which perhaps I and the current Freeholder are blurring into one as they are both interlinked.
Situation One is the need for a Lease Extension, Situation Two is the chance to purchase the Freehold.

Using the Lease Calculator which LS kindly linked to, I arrive at a figure of £7k-£8k however IF I am able to buy the Freehold on my own which will cover both the flats for £12k, this would seem reasonable as I would recoup a large portion of this when the other leaseholder wanted an extension.

As Puzzler pointed out, one would expect the new purchaser to want a lease extension prior to completion which would then reduce the overall value of the Freehold to me and so £12k would seem steep.
As the Freeholder owns the downstairs flat and has it up for sale would it not make sense for him to extend the lease himself thus increasing the value of his flat and at no cost to him?

Could he do this without informing me or without extending the lease on my flat?? - THIS IS THE QUESTION I WOULD MOST APPRECIATE AN ANSWER TO - Please!

So many different scenarios!
Can anyone, (Mark of 118?) recommend a solicitor who specialises in this area? I am in south Essex, I get on reasonably well with the freeholder but I feel sure he would be rightly taking advice too.

Thanks again

Paul,
Yes, I believe that he could extend his own lease at no cost to himself and without informing you. It's his freehold, his lease so, to a point, he can do what he likes. Reference my long posting above - my lease was 64 years and the other flat was 82 years.
What he cannot do without informing you is change any of the specific details of the terms of the lease. Both leases must match/agree/ compliment each other as appropriate otherwise it will be impossible to manage the building or resolve any queries/disagreements.
I hope this helps.
Graeme.

Reply to the comment left by "Graeme " at "23/10/2015 - 16:22":

Thanks Graham,
So you are saying that he can't change specific terms of the lease without informing me but he can change the term of the lease on his flat but not mine.
In which case, if he has half an idea, it would make sense for him to extend his own lease at no cost to him which will increase the saleability and price of his flat.
If so, this would leave me needing to negotiate harder on his asking price given that the price for a lease extension on only my flat is indicated at £7k-£8k yet supposedly the Estate Agent told him the Freehold is worth £12k (which perhaps it is/was if neither flat has had its lease extended).
Thanks again!