Cost of Buying Freehold
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published.
Some of the expected changes include:
- 990 year standard lease extension for houses and flats
- Standardised format for service charge bills, for greater transparency
- Leaseholders will no longer have to pay their freeholder’s costs when making a claim
- Freeholders who manage their building directly must belong to a redress scheme, so leaseholders can challenge them if needed (already applies to managing agents)
- Ban on sale of leasehold houses, except in specific circumstances and schemes
- Fair and transparent buildings insurance handling fees
- Removal of two year requirement before statutory extension
While the existing act abolishes ground rent on lease extension and new leases, the new act does not cap ground rent on pre-existing leases.
The costs involved in buying the freehold of a leasehold house (also known as collective leasehold enfranchisement cost) vary depending on the number of activities taking place. The legal fees are lower if both the leaseholder and the freeholder agree on the freehold purchase price and choose to go the informal route.
Even if there are just 2 of you, ignoring the price of the premium to take over the freehold, you should expect the cost of buying freehold to be around £6,000 if you take the formal route to collective enfranchisement.
The leaseholder pays for the valuation costs, the premium (based on the freehold property value), the average conveyancing fees and any other associated costs, like Landy Registry fees. The leasehold property owner also has to pay for the freeholder’s survey and legal costs.
This article will focus on the formal route set down within Section 13 of the Leasehold Reform Act 1993. The informal route is not governed by the Act, which means particularly that there are no statutory time limits on procedures: there is no guarantee of success, and delays can be long and ultimately very costly.
How much does it cost to buy a freehold of a property?
The cost of buying the freehold of your leasehold property will vary based on individual circumstances. The informal route is less expensive, while the formal way is more complex and will have additional costs. We break down the leasehold to freehold cost below.
When multiple flats are involved, it is advised for the participating tenants to enter into a tenant agreement that will establish how the whole process is carried out - this comes at an extra cost and will not be included in the freehold purchase solicitors fees.
The cost of organising other leaseholders to enter a tenant agreement is not covered below.
- 1
Cost of establishing Nominee Purchaser Company
Our costs start at £450 INC VAT.
If there are just two leasehold property owners, then you can act as co-guarantors for each other, and there is no cost associated with this. If there are more than 2 participating leaseholders, you can set up a limited company and buy the freehold in its name.
You can set up a limited company yourself or ask a solicitor to do this, but they will charge you for their oversight and time. They will also set up the memorandum and articles of association on your behalf, draw up the share certificates and the company documents, and report to you all the requirements that your new company has to fulfil.
- 2
Collective Enfranchisement Valuation Costs
Our valuation costs start at £1,200 INC VAT for a desktop report with no site visit. For a site visit, the more flats involved, the more your valuation report will cost, i.e. a block with 20 leasehold properties might cost £10,000+.
Some online services generate inaccurate valuations. Unfair or unrealistic valuations can create conflict with the landlord, which may affect the whole process and is more likely to involve expensive negotiations and delays.
A chartered surveyor produces a range which takes into account both your and the freeholder’s perspectives, as well as any local factors. They also have the experience to anticipate claims and counter-claims and factor the tenants’ liability for the landlord’s reasonable costs when calculating the best premium to offer.
The valuer also examines the structure of the property, particularly in terms of its repair condition and how this may affect future service charges.
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Section 13 Initial Notice & negotiating with landlord costs
Our costs start at £600 INC VAT for serving the notice.
Your solicitor prepares the correct information to support your action, including obtaining office copies and lease information, preparing and serving the Section 13 Initial Notice (which kick-starts the formal process with the freeholder) and dealing with the Counter-Notice and referral to surveyors.
When a landlord cannot be found, you may not have to serve a Section 13 Notice, or you may just need to apply for a vesting order. Read more - What to do when you have an absent freeholder
- 4
Cost of the premium when buying the freehold
Expect to pay £1,000s++. This depends on many factors, such as the number of flats involved, the value of land in the area you're looking to buy your freehold in or whether the building has development potential, etc.
You have to be realistic, and this is why your initial and following communications with the other qualifying tenants are so important.
You will get a realistic estimate, which will help your calculations once you receive your freehold valuation report from your RICS surveyor.
Can I negotiate my freehold price?
Yes, you can negotiate the freehold price! This is much easier if you buy the freehold in the informal way. The formal route calculates the price using a formula and other factors such as marriage value, remaining lease and annual ground rents.
If you cannot agree on a price with the freeholder – which is unlikely – the case must then proceed to a First-tier Tribunal (Property Chamber) for it to determine the premium value. The chances of this happening are extremely small because the freeholder has to pay their own costs for this, so it will not be worthwhile if there is only a small difference of opinion on the premium value.
- 5
Freehold purchase solicitor fees
Average conveyancing fees range between £900 - £1,000+.
Once the premium has been agreed, then you are in a position for the final conveyancing to take place.
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Undertaking for Freeholder Fees
Freeholder fees can range between £1,500 - £2,000
In addition to the solicitor's legal fees, your solicitor also manages the freeholder's undertaking for reasonable costs which accompany the buying of the freehold, i.e. you have to pay for their costs associated with hiring surveyors and taking legal advice.
Freeholder's solicitor's fees are normally higher than you would expect to pay for a solicitor working for you because it is understood that you have to pay them.
- 7
Additional Costs
- Official Copy Of Register and Title Plan - £6
- Official Copy Of Lease - £3
- Register the notice at the Land Registry - £20 - £80 (based on the value of the freehold)
- Online ID Fee - £15
- Bankruptcy and Priority - £10
How do you calculate the purchase price of a freehold?
The leasehold to freehold cost will vary greatly based on factors such as the property's price, the remaining years on the lease and the annual ground rent. Typically, a long lease will attract a more affordable premium, whereas the more a lease reduces, the higher the premium.
It is best to get a valuation report from a chartered surveyor as they will offer an estimate suitable for both the leaseholder and freeholder.
The Leasehold Reform Act 1967 introduced 2 methods to calculate the purchase price for the freehold of a leasehold house:
- using the original value of the land
- using the original value of the land and a share of the marriage value
Marriage value refers to the increase in property value once a lease extension is granted. This only applies to a shorter lease, with typically under 80 years left. The marriage value is expected to be abolished as per the new leasehold law in the Leasehold and Freehold Reform Act.
The premium must be fair to both the leaseholder and the freeholder, who will incur "losses" once you stop paying annual ground rent, maintenance, and service charges.
Is a 999 year lease as good as freehold?
Extending to a 999 year lease is similar to buying a freehold in terms of longevity. Extending the lease will be a cheaper and easier process in the moment, but you will still have to pay for service charges and maintenance costs. You essentially get a long lease without the responsibility of being a freeholder.
If you wish to purchase the freehold, instead, the process will be more expensive and complicated, but you end up saving money long-term on service and maintenance costs. You will then be entirely responsible for the property.
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
