Buying Your Freehold: The Pros and Cons

Darren Bagnall, Managing Director of Flat Living Insurance explains the pro’s and cons of buying your freehold.

If you’re thinking about buying your freehold through Collective Enfranchisement, you may well be weighing up the pros and cons of such an undertaking. With everything from funding, general organisation and adhering to the statutory requirements of the formal process to think about, who can blame you?

We thought a round-up of pros and cons may be helpful for those still clinging to the fence.

Pro: You Have Full Control Over the Management of Your Building

Once the process is completed the Nominee Purchaser (this could be an individual, a trust, or a company formed by the participating leaseholder) will have become the freeholder of the building.

Commonly, this means that the freehold will now be in the hands of you and your fellow participating leaseholders via the company you formed during the process and so, the management of the building is now down to you- a comforting thought for those struggling with their previous managing agent or landlord.

You can decide to self-manage or appoint your own managing agent who is accountable to you.

Con: You Have Full Control Over the Management of Your Building!

For some, this thought is a comfort but for others, the overwhelming amount of responsibility and legislation is too stressful. Of course, you can appoint a managing agent but, as company director, the buck ultimately stops with you and you must ensure the managing agent is working within the law and utilising best practise.

Pro: You Can Maintain the Length of Leases

As leases become shorter and shorter, the value of properties decreases- sometimes to the point of being unsaleable if mortgage providers decide they can’t loan against a unit due to the falling value and their perceived risk.

Owning the freehold of your property means you can extend leases to 999 years at the same time as having more control over modernising the existing small print- increasing their value and making properties far more attractive to lenders.

Con: You’ll Be Dealing with Your Neighbours on a Whole New Level

From disputes between co-freeholders to chasing late payers among your lease-holding neighbours, you must be confident in your abilities to communicate on all levels and remain clear and authoritative while maintaining important relationships.

Con: The Enfranchisement Process Can Be Challenging and Costly

The formal process can be an organisational headache with its many statutory requirements, as well as an expensive one involving loans, mortgages and fees for solicitors and valuers.

Keeping all the participating leaseholders on track can be tough, especially if the process is opposed by the existing freeholder and the costs start to increase, but most issues can be kept at bay with an experienced solicitor and valuer by your side.

The first worry is often how to raise the necessary funds, and an accurate idea of the possible purchase price is needed before any of the wheels start turning.

You’ll need to instruct an experienced surveyor to carry out a valuation for you. While they cannot produce a precise estimate, they can give you an idea of the overall cost based on a worst and best-case scenario from both the landlord and the tenants’ point of view. They should also be able to alert you re any areas they believe the existing freeholder may counterclaim.

The costs will include:

• Professional advisors/surveyors/solicitors
• Mortgage/loan arrangement fees
• The existing freeholder’s reasonable costs
• Land Registry title changes
• Stamp Duty
• Land Tax
• Any maintenance/repair costs depending on the state of the building

So, as you can see it’s a mixed bag! But, if the overall aim of taking control of your building overrules the potential pitfalls you may encounter, then collective enfranchisement may well be the right choice for you.

Head to our website for details of the policies Flat Living Insurance offer. You can also find details of our sister companies Manage Your Block and Block in a Box– tools specifically designed to make the lives of RMC directors simpler and easier.

For any additional information call our team on 0333 577 2044.