Leasehold properties |
“How big is the risk of buying this property?”.
This was a question one of my clients asked on Saturday.
They had seen a property on the internet and asked my thoughts on it because while it meets many of their criteria, there are a few issues, not the least of which are the communal areas, which are a bit bedraggled, to put it politely.
My clients are Italian and are concerned that if they acquire a property which is worth c. £4m, they will be blighted by the fact that whenever they return home, they will be depressed by the entrance that seems more like that of a building of bedsits rather than multi-million pound apartments.
Now, you may be thinking, well why not just spend £20-30k improving it yourselves because it will add at least that to the value of the apartment. And, in a perfect world, you would be absolutely right!
But, as you may have noticed, the world is far from perfect. And while, I mentioned that doing it themselves was an option, I also pointed out the problem – the apartments in the building all have a share of the freehold which can make it far more difficult to do anything, because you will need the consent of the other freeholders to do the work and this is not guaranteed.
For example, we know that the sole director of the company that owns the share of the freehold (in which all the apartment owners have a share) is very proud that the service charges are low so and doesn’t seem to mind the shoddy entrance hall. She also seems to like the fact that she “runs” the building, so it is likely that she will have very strong views on what the communal areas will look like and won’t like the fact that someone else is trying to take control, so she could simply refuse on that basis…
And this is before we start speaking to the other freeholders to see what they want. In other words, while my clients would happily pay for the renovation, we can’t be guaranteed that the others will agree to it even though it would be to their financial benefit.
Believe me, this is not me being overly cautious. There are countless stories of neighbours behaving like absolute cretins towards one another over the most trivial things. The one that sticks in my mind are two house owners who argued over the position of the fence that divided the two gardens, which was allegedly six inches too close to one house.
It went to litigation and dragged on for so long that the party that brought the lawsuit ended up losing their home because they lost the case and had to sell the house to pay for their legal fees. Which just goes to show that if you let emotions get in the way of any negotiation, things are likely to go wrong – often horribly so.
Share of freeholds are not always better than leasehold properties.
And this is why share of freeholds are not always better than leaseholds. A well-run leasehold property is often much better because you have a legal obligation to pay into a reserve fund and the bureaucracy of running the building is handled by a third party.
In addition, properties with long leases that have a well organised freeholder who owns lots of properties can also benefit from the freeholders purchasing power to get work done more cheaply.
So, share of freeholds are not quite the wonderful solution that people think they are. Yes, there are some shockingly bad freeholders, inept managing agents and there are plenty of horror stories. But don’t for one second think that merely by owning a share of the freehold, all your problems will disappear.
A well-run building is a well-run building. I would much rather acquire a leasehold apartment in a good building than a share of freehold in a building such as the one described above. Of course, at the right price it may make sense and it also depends on your risk tolerance and whether you plan to rent the property as well as other factors.
But please don’t blindly assume that share of freehold means trouble-free ownership. As always, please do your due diligence.
Contact Mercury Homesearch
And, if this all seems unduly complicated, you are not wrong but that is the system we have, so if you have any questions, do email me at jeremy@mercuryhomesearch.com or call 02034578855 (+442034578855 from outside the UK).
Topics | Leasehold properties ; Freehold properties
