Buy your freehold
How to buy the freehold or get the right to manage
It sounds bonkers. We're happy to stump up six-figure sums for flats, when often someone else owns the land they stand on. Leaseholders must pay £10,000s to extend leases, and unfair service charges are rife.
Yet in England and Wales powerful laws mean leaseholders can force the freeholder to sell the freehold or they can just take over their building's management. This step-by-step guide shows how to fight back.
Is it worth buying my freehold?
Legislation has made it easier for leaseholders to take control and buy their freehold, effectively giving the freeholder the boot.
It's all about a legal process called collective enfranchisement, which gives you to the right to club together with other leaseholders to buy the freehold for a fair market price. This underused right was brought in by a 1993 law, and boosted by the Commonhold and Leasehold Reform Act 2002.
Lease extensions are cheaper
If you don't own the freehold, leases can cost £10,000s to extend, especially if they drop to 80 years or less. Plus leaseholders must pay ground rent (usually small) and service charges (often a fair whack) to the freeholder.
You could add value to your flat
Estate agency Kinleigh Folkard & Hayward says most surveyors add an additional 1% to a flat's value for the benefit of the freehold, compared with an identical flat with the same number of years on the lease but no freehold.
Some inspiration ...
Here are a few MoneySavers' experiences for inspiration, but remember this won't work for everyone. If you've bought a share of the freehold, please post your experiences, good and bad, in the Buying a share of the freehold discussion.
Buy the freehold vs right to manage
Leaseholders who want more control over their flat have two options. They can buy the freehold, but under the Commonhold and Leasehold Reform Act 2002, most leaseholders can apply with other leaseholders for the 'right to manage' their building.
How much does buying my freehold cost?
The cost (exc. fees) is roughly the same as for extending the lease by 90 years.
The bulk of the cost is the share of the freehold itself. There's no set price. It depends on lease's length, flats' values and ground rent. It also rests on negotiations and the surveyors' valuation. The shorter the lease, the higher the cost.
As a rough rule of thumb, the cost of a share of the freehold for one flat (excluding legal fees) is similar to the cost of extending a lease by 90 years. Just plug your details into the Lease Extension Calculator our to see how much that would cost - it automatically assumes you will add 90 years.
If you ask surveyors round for a quote on an official valuation, they will often volunteer a rough estimate of freehold's price and how much value it could add to your flat. You can also call solicitors for quotes, who may also be able to give an indication.
Freehold costs are decided by a complicated formula and vary dramatically. Read more on how the freehold value's calculated.
The cost of the freehold itself depends, by law, on the following formula, and you must pay some or all of the following. (For further help, read the Leasehold Advisory Service's full help on valuing the freehold.)
Marriage value
If the lease is 80 years or less, you must also pay 50% of the flat's 'marriage value'. This is the amount of extra value a share of the freehold would add to your property. But remember you pay no marriage value if the lease is over 80 years. So if you've, say, 82 years left, act now.
- Ground rent
You must cover the freeholder's lost ground rent over the lease's length, plus interest. This interest rate is called a 'discount rate', which the valuer decides based on how good an investment the pad is. For example, a Kensington penthouse will probably be a safer investment and thus have a higher interest rate than a large block in an insalubrious area.
Other costs to factor in
On top of the cost of your share of the freehold, you pay a few other fees:
Legal fees.
Legal costs vary hugely, depending on the situation's complexity. Solicitors typically charge £4,000ish in total for dealing with a freehold purchase for five flats. Count on £500ish extra per flat to extend the lease to 999 years (worth doing while you're at it).
Usually the more flats that take part, the cheaper your individual legal costs. This is because the time spent is similar, regardless of whether there are two or 20 flats. Costs will be more if you go to a Leasehold Valuation Tribunal, though this is not usually necessary.
Valuation fees.
A surveyor will need to value the flat and freehold. Again, fees vary but expect to pay £500 to £600 per flat.
Stamp duty.
Stamp duty applies to lease extensions and freehold purchases in the same way as any other home purchase. However, this is unlikely to affect most flat-owners, as you don't have to pay anything if the purchase price is £125,000 or less. Use our Stamp Duty Calculator to check if it affects you.
The freeholder's fees.
You'll need to pay the current freeholder's valuation and legal fees. Sadly, they have no incentive to use a reasonably priced solicitor, but if they take the mickey, you may be able to take the case to the Leasehold Valuation Tribunal (LVT).
How to pay for it
Hopefully, buying the freehold will add value, but don't take out credit cards or loans to do it.
Mortgage broker London & Country says most lenders will extend a mortgage to pay for buying a share of the freehold or a lease extension. You'd still need enough room on the mortgage to cover it and be able to meet the repayments though. Lenders may be cautious if you've a really short lease.
Plus, remember, borrowing's cost isn't just about the rate, it's about how long it's for. The longer, the costlier – and most mortgages are over much longer periods than loans or credit cards. Do your sums with our Mortgage Calculator and see the Remortgage Guide.
How much does getting the right to manage cost?
Using your right to manage is far cheaper than buying the freehold. You pay no fee for the right to manage itself. Yet there are still costs to bear in mind.
With the right to manage, you don't need a valuer, so you save a whole chunk of professional fees.
Legal fees.
Legal fees vary according to a block's size, but typically range from £500 for a building with two flats to £1,000 for 20 flats. If the case goes to a Leasehold Valuation Tribunal (LVT), you'll have to pay more, generally an extra £1,500ish. (All prices are per building, not per flat.)
The freeholder's reasonable costs.
Leaseholders bear the current freeholder's reasonable costs. These are harder to predict, but are typically £1,500ish per block. If you think these costs are too high, you may be able to challenge them at a Leasehold Valuation Tribunal (LVT).
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Buy the freehold – step-by-step guide
To qualify to buy the freehold, generally you need:
At least two flats in the building, a lease longer than 21 years and for at least 50% of leaseholders to take part.
How to buy the freehold
The process typically takes about a year – more if you have a meanie freeholder who is determined to drag it out. You will need expert advice from a solicitor specialising in collective enfranchisement.
Step 1. Galvanise the other flat owners
The first job is to see if the other residents are up for it. To buy the freehold, at least 50% of the buildings' flats need to take part, eg, if there are four flats, at least two must agree.
Have a natter to the other residents – why not print this guide or send them a link to it? Of course, if other flat-owners can't afford it, don't pressurise them. Try not to stress if you can't get 100% of flats to join in – it could well not be possible.
At this point many will ask "how much does it cost?" Provide an estimate using the how much does it cost section above, but do make clear this could differ wildly from the true cost.
Some very large blocks appoint a professional project manager to avoid lumbering one flat-owner with a multitude of tasks.
A quick note: residents must keep paying current freeholders' service charges until they've bought the freehold, even if they've a beef with them. If any leaseholders are in arrears, you must pay their share back before you can take over the freehold.
Step 2. Find a solicitor
Expert advice is absolutely crucial: the solicitor will help to prepare and serve the initial notice, negotiate a final price and amend the leases.
Don't think just because a lawyer did your divorce, they can do this job too. Ensure you place the project in the hands of a solicitor specialising in collective enfranchisement – freeholders can exploits mistakes made by the ill-advised.
The Leasehold Advisory Service lists solicitors that specialise in leasehold law, and the Law Society's Find a Solicitor tool has a section on conveyancing. Also try The Association of Leasehold Enfranchisement Practitioners' site.
Don't be afraid to consider someone from further afield; they needn’t be nearby. It’s perfectly possible to use someone in Newcastle when you live in central London, and it can be much cheaper. Check whether the fee is fixed or an estimate.
The more flats that take part, the cheaper each flat's legal costs. But the more the freeholder tries to drag it out, the more expensive.
The Leasehold Advisory Service advises residents to sign legally binding participation agreements to avoid logistical headaches – especially if it's a large block.
If there is no agreement, flat-owners may back out at the last minute, and you might not have enough funds or be able to meet the 50% requirement. Your solicitor can help with this.
Step 3: Value the freehold
The next step is to value the freehold. Hire a chartered surveyor who is an expert in collective enfranchisement to give a valuation a best and worst valuation, using local experience.
The Leasehold Advisory Service lists surveyors specialising in leasehold. Also try The Association of Leasehold Enfranchisement Practitioners' site. Expect to pay £500-£600 per flat, less outside London and the South of England.
Step 4. Set up a company
Enfranchising blocks must decide a 'nominee purchaser' who will buy the freehold. This can be a person or group of people, but it's usually a limited company set up by the group of leaseholders for the purpose of buying the freehold.
Setting up a company costs £250ish, and you need to set it up before serving the initial notice on your freeholder. You'll have to file accounts and elect directors of the company, who will take decisions after you bag the freehold. Your solicitor will help with all this, plus Companies House also has lots of good free advice on starting and running a company.
Flat-owners who volunteer to become a director of the company have the same duties and liabilities as directors of other limited companies. So do consider directors' insurance to protect yourself - your solicitor will be able to tell you more about this.
Step 5: Negotiate the price
Your solicitor may informally approach the freeholder first (if they agree, your legal costs may be slightly cheaper). If this doesn't work, they will issue an initial notice, stating your offer, which every participating leaseholder must personally sign.
From the moment the notice is served, the leaseholders are liable for the freeholders' reasonable legal and valuation costs, so ensure the notice is correct and complete.
The freeholder usually has two months to reply – if they don't, you can buy the freehold at that price. They'll then come in with a counter-offer and negotiations will bounce back and forth. If you can't thrash out a fair price, you can get the cost decided by Leasehold Valuation Tribunal (LVT), the arbiter of lease disputes.
You're eligible to go to tribunal from two months after the freeholder's counter notice was due.
Some sneaky freeholders try to stall by claiming they are happy to sell at a fair price, but then mysteriously never finalise details. Give 'em a deadline to send you a contract of sale with a fair price. Otherwise, go to an LVT.
Step 6. Go to a Leasehold Valuation Tribunal (LVT)
If the freeholder drives too hard a bargain, take the case to the local Leasehold Valuation Tribunal (LVT). It will set a figure. Crucially, remember:
You must apply to the LVT within six months of when the freeholder's counter notice was due. Miss this window and you'll have to start all over again.
Once you apply, you usually need to wait about four months for a hearing, though it varies. The LVT sends a written decision. It is possible to appeal in rare cases; consult your solicitor.
The Leasehold Advisory Service publishes lists of past LVT enfranchisement decisions, though you'll need to be dedicated to wade through the legal jargon. Also see News on the Block's LVT Bulletin, which summarises key decisions. You can search and read extracts for free, but need a subscription for full info.
Once the matter's settled and you've a new lease of life (sorry), it's a good idea to get your solicitor to extend everyone's leases to 999 years. The Federation of Private Residents' Associations (FPRA) has a useful pack about what to include in a lease after you've purchased a freehold, which costs £18.
At this stage flat owners take control of the building's management. See further info for more on this.
If you have a mortgage you may also need to transfer the mortgage from the old lease onto the new one. Some mortgage companies charge and admin fee for this, not normally more than £75.
The freeholder must offer flat-owners the freehold
If a freeholder wants to sell the freehold, by law the must first offer it to the flat-owners in the building. It is a criminal offence not to.
Right to manage - step-by-step guide
Under the Commonhold and Leasehold Reform Act 2002, most leaseholders have the 'right to manage' their building. You don't have to prove any negligence, poor service or wrong doing.
This doesn’t necessarily mean managing the building by yourself – many blocks appoint a third party managing agent of their choosing to carry out the management for them.
While many blocks are eligible, you should probably only consider if you've a beef with your property management company, for example, excessive service charges, substandard work or aggressive service charge collecting. It's always better to contact your freeholder or property management company directly to resolve the issues.
The qualification criteria for both buying the freehold and right to manage are the same. So if you can get 50% of the flat owners to participate and have enough money, you may as well go all the way and buy the freehold. For similar effort, the prize is greater.
With right to manage, you still pay for lease extensions and it's unlikely to boost your flat's price.
Is your building eligible?
Not all buildings can get the right to manage - there are a few exclusions. This tool gives a steer, but bear in mind the law is complicated, so you'll need to ask a solicitor.
How to take over the building's management
The process will hopefully be speedier than buying your freehold. If you have a managing agent in mind to take on the management tasks, it is quite possible they will handle the right-to-manage process for you for free on the understanding that you appoint them to manage the building afterwards. To find one, see further help below.
Step 1. Set up a right to manage company.
Try to get 50% of flat owners together first to ensure you have enough people and aren’t wasting your time and money.
You will then need to form a right-to-manage (RTM) company. A solicitor could help – the Leasehold Advisory Service lists solicitors that specialise in leasehold law. Also try The Association of Leasehold Enfranchisement Practitioners' site.
Step 2. Ask the other flat owners to take part.
The new company then formally invites all the building's leaseholders to take part, with a 'notice to participate', which your solicitor will help you draft.
Step 3. Tell the freeholder.
Once at least 50% agree, your solicitor will send a 'claim notice', telling your freeholder you want to take up your right to manage. The freeholder will then either accept or challenge your notice. There is then a period of at least four months from service of the claim notice until the right to manage is acquired.
Some freeholders dispute the claim. Don’t give up – they only do it because at this point many flat-owners abandon the claim.
If they challenge, you can apply to the Leasehold Valuation Tribunal (LVT) to take over the management.
Step 4: Take control.
Some blocks then appoint a managing agent to maintain the property, to arrange insurance and also collect flat-owners' service charge dues etc. See further info for help on managing your building.
You must invite the freeholder to join your right-to-manage company. The logic behind this is that the freeholder still owns the structure of the building and the land it sits on, and so has an interest in how the building continues to be managed.
Also see the Leasehold Advisory Service's info on how to get the right to manage.
Further help & advice
The Leasehold Advisory Service
has a wealth of free advice on leasehold law, including service charges, extending your lease, buying the freehold, right to manage and applying to the Leasehold Valuation Tribunal.
You can also get advice in person or by calling 020 7383 9800.
Help managing your building
Sure, it might have been difficult buying your freehold or getting the right to manage, but now the real work starts. At this stage flat owners take control of the building's management, from repairing the roof to changing light bulbs.
Some large blocks pay a management agent to work on their behalf, which collects service changes and arranges insurance. For more info, contact the Association of Residential Managing Agents. The Royal Institution of Chartered Surveyors (RICS) also lists members that are residential managing agents.
The Federation of Private Residents' Associations (FPRA) has a pack about setting up a residents association, which costs £18. You may also decide to build up a sinking fund to pay for repairs. Your solicitor can advise on all these issues.