If you currently own a leasehold property, you may have considered buying the freehold. While this can be a long process, it will ultimately provide you with more freedom when it comes to making changes to your home.
In this article, we have covered everything you need to know about buying the freehold. This includes checking eligibility, getting a mortgage and freehold laws.
What is a Freehold?
A freehold property is a property and its surrounding land that is owned outright. Most houses are freehold, and the person who owns the property handles any property and land maintenance.
When it comes to flats and maisonettes, these properties tend to be leasehold. As a result, the person purchasing the property will own the home itself but not the building or land the property is situated.
Some new build properties still fall under leasehold too. Laws surrounding this changed in 2019, and leasehold contracts on new build houses were abolished. This was to ensure no unfair practices occur and that the owner owns the land in addition to the property. Many leaseholders were then given the freehold at no additional cost.
Should You Buy a Freehold? Pros and Cons
When it comes to buying a freehold, there are several advantages and disadvantages that you need to be aware of.
Advantages of Buying the Freehold:
You will gain more control and won’t have to seek as much permission if you want to make changes to the property
You can choose how the property is managed and maintained
Buying the freehold is less expensive in the long run as you won’t need to pay ground rent fees or maintenance charges
Typically you will not be charged for extending the lease on the property
The cost of buying the freehold is similar to the cost of a lease extension
Disadvantages of Buying the Freehold:
The purchase process of buying the freehold can be more complicated, especially when it comes to neighbour disputes
The process can take a significant amount of time to complete, especially as many parties will need to be in agreement (typically between 6-12 months)
You will be responsible for maintaining and upkeeping the property and any potential communal areas
You will still need to have a lease on the property
If a limited company is used, you will need to work with and rely on others when it comes to the maintenance and upkeep of the property
You will need to pay all legal and valuation fees
For more information read: Freehold vs Leasehold: What’s The Difference?
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Step 1: Check if You Are Eligible
Before you begin the process of buying the freehold, you will need to check whether you are eligible to do this. Here is the eligibility criteria for leasehold houses:
The lease will need to be more than 21 years in length
The building must have less than 25% non-residential purpose
The building must be self-contained
A minimum of 50% of the property owners need to agree to buy the freehold
You must have owned the lease of the property for over 2 years
All of these criteria must be met to be eligible to buy the freehold. The freeholder will decline your request if you aren't eligible. If you’re purchasing the freehold of a house the process can be slightly easier as you won’t need to involve other property owners.
Step 2: Get Fellow Residents Involved
If you own a flat within a building, you must speak to the other flat owners and property owners. As stated, at least 50% of the property owners must agree to buy the freehold through collective enfranchisement.
Collective enfranchisement is the legal process where the leaseholders of a building buy the freehold. This process has been possible in the UK since the Leasehold Reform Housing & Urban Development Act 1993. If a group of leaseholders follow the criteria and have a legal claim, they have the right to jointly acquire the freehold.
Step 3: Get Valuation of the Freehold Using a Surveyor
Having a valuation carried out when buying the freehold is essential. It will give you an accurate valuation and independent indication of the property's purchase price. The most reliable way to do this is by hiring a surveyor.
The surveyor will take into consideration complex factors including:
The income received from ground rents.
The marriage value.
The reversionary value of the freehold on expiry of the leases.
The value of other interests such as commercial properties or garages.
Compensation for other losses
It’s important to work with a verified and experienced RICS Valuer during this process. Here at Compare My Move, we can connect you with up to 6 valuers in your local area. Simply fill out our online comparison form to compare prices and services. We can also save you up to 70% on your fees.
A property will be more expensive to purchase if there are fewer years left on its lease. In most cases, the lease is automatically renewed when the freehold is purchased.
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Step 4: Get a Mortgage (If Needed)
In most cases, the person looking to buy a freehold will currently have a mortgage on the property in question. Due to the costs, a mortgage extension will likely be required. It’s important to discuss your finances with a specialised mortgage advisor and your mortgage lender regarding this. If you don't have a mortgage on the property, you will need to have the funds to purchase the freehold yourself.
Step 5: Get a Solicitor
Seeking help from a qualified conveyancing solicitor is essential when buying the freehold. They can provide you with all the correct legal advice you will need. Solicitors will liaise with all parties involved on your behalf. They carry out all the necessary legal work involved with buying the freehold. This includes the freeholder’s solicitors. They will ensure all legal documentation has been completed correctly.
Solicitors help to keep the process moving forward and will advise on any legal disputes should they arise. It’s useful to choose a solicitor who’s an Association of Leasehold Enfranchisement Practitioners (ALEP) member. This is because they specialise in leasehold laws and follow their strict code of practice. You will receive high-quality services as a result.
To find a suitable conveyancing solicitor fill out our online comparison form. We will connect you with up to 6 trusted and verified companies in your area. All our partners are trusted and verified. They are also regulated by either the Solicitors Regulation Authority, CLC, LSS, LSNI, or CILEX. We can also help to save you up to 70% on your conveyancing costs.
Step 6: Sign a Participation Agreement
A Participation Agreement is an important part of the buying a freehold process. It is carried out by your solicitor and provides security and peace of mind. Each leaseholder looking to buy the freehold will sign this contract which notes the legal aspects participants need to be aware of. This will need to be completed before the initial notice is given to the freeholder.
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Step 7: Set Up a Company
There are two avenues to explore when it comes to buying a freehold with multiple people. You can either choose a nominee purchaser or you can set up a limited company.
Nominee Purchaser
A nominee purchaser places one person in charge of matters. They will be the only person named on the Initial Notice and will own the freehold once it has been purchased. While this is fairly straightforward, it can cause potential disputes with other leaseholders. As a result, many people prefer to set up a limited company
Setting Up a Limited Company
Setting up a limited company is the fairest and most secure option when buying a freehold. This is because everyone involved will have an equal share of the property once it has been purchased. You will be charged £50 to set up a limited company. While it is the most sensible option to consider, the management of the company will need to be considered.
Step 8: Issue a Tenant’s Notice
Before leaseholders can legally buy the freehold, a tenant’s notice will need to be issued. This is a formal request that is given to the freeholder or landlord. It must be signed by all leasehold parties interested in purchasing the freehold. It should be issued as soon as the majority of the freeholders are in agreement.
This is because, without the tenant's notice, you cannot buy the freehold. If the majority of leaseholders are in agreement and meet the criteria, the landlord legally cannot decline this request.
Step 9: Wait for the Landlord’s Notice in Reply
Once a tenant’s notice has been served, the landlord or freeholder will have two months to provide a ”notice in reply”. This is a response to the request. In this notice, they will detail whether they agree with the sale. If the sale request is declined they must provide reasoning for this.
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Step 10: Agree on Price
After the landlord or freeholder has agreed to sell the property you can then begin your price negotiation. The leaseholders and landlord will need to agree on the figure. This is why it’s so important to have a valuation survey carried out.
It’s not uncommon for the landlord to ask for a deposit. This is typically the cost of three times your annual rent. The notice given to the landlord must be legally correct for the proceedings to continue.
Step 11: Complete the Sale
Once the leaseholder and freeholder have agreed, the paperwork for buying the freehold can be completed. Once the sale has completed the leaseholders will then become the freeholder of the property.
Laws Related to Buying a Freehold
There are laws in place to ensure that the leaseholder can request to buy the freehold of the property they own. This includes the Leasehold Reform Act 1967, and the Leasehold Reform Act 1993.
Leasehold Reform Act 1967
The Leasehold Reform Act 1967 was initially set up to give leaseholders the right to buy the freehold of a property they have purchased. As explained, there are several rules and regulations set out by this act that leaseholders will need to meet and abide by.
The Leasehold Reform Act is reviewed regularly and favours leaseholders. For example, The Leasehold Reform Act 2022 is set to put an end to ground rents.
You can seek free advice from the Leasehold Advisory Service (LAS) regarding further buying the freehold matters.
Right of First Refusal
If a landlord wants to sell the freehold, legally they have to offer the leaseholders the opportunity to buy the freehold. This is commonly known as the right of first refusal.
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Frequently Asked Questions
How much on average does it cost to buy a freehold?
£6,000 is the average cost of buying a freehold. These costs will vary depending on the marriage value and the cost at which the property is valued. There are costs you will need to consider including (on average):
- Valuation Cost - Between £452*
- Solicitor’s Fees - £800
- Tenant Agreements - Costs vary on a case-by-case basis
- Freeholders Fees - £814
- Stamp Duty - Between 5-12% of the remaining property cost
- Limited Company Set Up Costs - £12
Read more on: How Much Does it Cost to Buy the Freehold?
Will a formal valuation be needed before a claim?
It’s important to have a formal valuation carried out when deciding to buy the freehold. This will give all parties involved an accurate, independent and clear idea of the true value of the property. This will help when it comes to potential price negotiations.
How much do solicitors charge to buy freehold?
£800 is the average price you can expect to pay in solicitor and legal fees when buying the freehold. This is the cost based on the purchase of 4-5 flats through collective enfranchisement. Buying the freehold is a longer and more complicated process as a result, you can expect solicitor fees to be higher.
The more people involved in buying a freehold, the lower the overall costs will be when the costs are divided between individuals. Legal costs and disbursements apply. This will include but isn’t limited to:
- Freeholder consent - Around £250
- Transfer of ownership with land registry - £438
- Bankruptcy checks - £3
- Bank transfer fees - £40
You can also expect to pay for the cost of Land Registry fees. Stamp Duty Land Tax (SDLT) may apply if the cost of the freehold is over £250,000. If you live in Scotland you will pay Land and Buildings Transaction Tax (LBTT). Those living in Wales will pay Land Transaction Tax (LTT).
Can a landlord impose restrictions on the freehold?
The landlord or leaseholder can refuse to sell the freehold if a leaseholder is not eligible to purchase it. Once you have purchased the freehold, no restrictions can be imposed on the property. This is because the buyers legally then own the freehold and are no longer leaseholders.
How long does buying a freehold take?
On average, it will take between 6-12 months to buy a freehold. Timescales will vary depending on individual cases.
What if we can’t agree on the price?
In some instances, the leaseholder and freeholder may not agree on the price of the property. In this instance, you should contact the First Tier Tribunal. If you live in Wales you must contact the Leasehold Valuation Tribunal. They can assist with legal disputes regarding the property. They will help to determine a price. After the notice in reply has been served, you will have six months to seek advice.
*Based on the average service costs for Compare My Move users. See how our data works.
