Pros and cons of freehold acquisition

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Tuesday 2 December 2008 10.47am
The developer of my building's putting the freehold up for sale and there's a move among leaseholding residents to purchase. Anyone here got pros and cons to share? Thanks.
Tuesday 2 December 2008 1.12pm
I think they generally say that a block that's owned by the tenants/leaseholders is generally treated better and better serviced than by a management company.
On the other hand, you'd probably get the same benefit if you didn't chip in your tens of thousands, which might be better spent paying down a mortgage.

If you do buy in, you have to consider whether to be a director or not. If you do, you would have influence, but then again you could be sued and you'd probably not have the option of suing the other directors for their failures.

I live in a block owned by the other leaseholders, and it all works pretty well I think.
Tuesday 2 December 2008 3.32pm
It depends on how the building care is structured.

Generally these days the structure is didvided in to ordinary lease holders and a headlease where the ordinary lease holders also own the head lease. This gives them the right to manage the building themselves, allowing the freeholder only the right to collect ground rent and insure the building.

If you manage the building well(through the head lease), either as indivisduals or using a property management comapany, then there is little value to owning the freehold except in the very long term as your own individual leases run short. Otherwise if you have very long leases owning the freehold is pretty much worthless (and therfore should be very cheap to buy too).
Wednesday 3 December 2008 12.34pm
Thanks both. A guy I work with says there are companies out there that buy up freeholds as cash cows in order to milk fortunes from the residents via expensive service/maintenance charges. Real danger or urban myth?
Monday 8 December 2008 4.07pm
There are companies who invest in freeholds only....the value of the freehold is minimal if the leases are long and the ground rent is not high. However, the shorter the lease the more difficult the whole thing gets...with the freeholder wanting to maximise profit potential by granting a lease extension/renewal and the flat owner wanting to minimise costs by paying as little as possible. The Leashold Valuation Tribunal is the best place for information on this.
Tuesday 9 December 2008 11.26am
Thanks, urbanite.
Tuesday 9 December 2008 2.21pm
Freehold Buyers Beware until Mr Pilling looks at the small business law.
We bought our freehold back in 1999, forming a freehold Ltd company with equal shares for the 155 flats on the estate. Alas, there wasn't a clause in the companies articles that said the directors had to be re-elected by the shareholders. So we have been stuck with the same useless bunch who use the rest of us like cash-cows via service charges of almost £ 3,000 a year plus vast charges for ā€œmaintainanceā€ by their own builders/plumbers.

Moreover, the change in the law for "small businesses" applies so last night at a "meeting" the five director buddies, their running dog managing agent, "professional" Company Secretary and their bent lawyer announced there would be no more AGMS, shareholders would no longer be given the opportunity to vote, the same directors would be kept in place and the service charge accounts would not have to be audited.

Also, this new law means that we cannot trace all the thousands of pounds that these directors have helped themselves to through money for lease extentions they sold and the sale of a flat belonging to the company/shareholders. When we attempted to put questions to the board at the meeting last night we were shouted down by the chairman and laughed at by the lawyer. Those few who turned up - about 22 residents out of 155 flats - sat silently, as if frightened of the board of bullies.

We have spent thousands of pounds in legal fees trying to find out where the company money is credited (various bank accounts) but even our lawyer says that the change in small business law makes it impossible for him to get into the company accounts. We even withheld our service charges (paid it into our solicitor's) so they would take us to Court. They did: the judge ordered both sides to go to official mediators - we turned up, the directors didn't.

ARMA is just a cloak to give managing agents an air of respectibility when they are a bunch of greedy
commission-grabbing shysters

The only light in the tunnel, is that David Pilling of RICS is seeking to have the small companies law altered so that shareholders in Freehold companies who have bought their flat do not continue to suffer at the hands of greedy bullies.

Contact Mr Pilling urgently if you, too, are being used as a directors'/ managing agent's cash cow.

David Pilling. Regulation Policy Project Manager. RiCS ... Registered office: 12 Great George Street, Parliament Square, London SW1P 3 AD .
Telephone: +44 (0)20 7334 3781
Fax: +44 (0)20 7334 3871
Tuesday 9 December 2008 11.41pm
Fee that sounds shocking.

In the building I live in, we brought out the lease and formed a company in which all flats are shareholders. A share of freehold if run right can benefit the building and it's residents as you have a say in what is done, when it's done and how it's done. It is a lot of work for anyone who is on the committee or a director but it can also be very rewarding. I would think if you have the opportunity to buy the freehold then you should go for it.
Saturday 13 December 2008 11.37am
Thanks, Fee. On the principle that forewarned is forearmed, that's just the sort of info. it's useful to have.Still appreciating all postings. I'm out here taking notes!
Saturday 13 December 2008 9.33pm
If there are enough of you that feel the same way, then it will be relatively straightforward to organise an EGM of shareholders to have the directors dismissed and a full audit done - especially if you suspect fraud.
Have you consulted a company lawyer about this?
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