Buying Ground Rents (also known as Freehold Reversion) need not be a complex process, and has many advantages.
An article recently published in the Investors Chronicle highlights the benefits to investors of buying up ground rents. This refers to the practice of buying the freeholds of leasehold properties, particularly in blocks of flats. Such ground rents are often offered for sale in property auctions.
The returns available to investors include:
- Regular income from Ground rents – leaseholders have to pay a yearly ground rent fixed by their leases. In older leases there may be no provision for uplift, but modern leases often require upwards reviews every ten years or so.
- Commissions, management and various other charges which can be levied under leases.
- Capital gains from lease extensions – when the term of a lease falls below about 80 years leaseholders often apply for an extension, and have to pay a premium for this.
- Freedom from risk – leaseholders who fails to pay ground rent could risk forfeiting the property to the freeholder. “No flat-owner in their right mind would risk their £200, 000 flat by failing to pay a ground rent of £100 a year, to give two not untypical values. ”
Tenants’ rights of first refusal to buy freehold
Leaseholders may think that the freehold of their building could be sold without their knowledge. However the Landlord and Tenant Act 1987 gives tenants the right of first refusal if a freeholder intends to sell on the open market.
Buying the freehold will give flat-owners the ability to manage the property themselves, and save the management charges imposed by commercial landlords. They will also be able to extend their leases if this is necessary.
The Act requires freeholders to serve notices on all qualifying tenants of any intended disposal, including auction sales. Such notices must specify the terms on which the freeholder will sell, and will constitute a formal offer to sell to the tenants. The notice should also set out the time limit within which it must be accepted.
Leaseholders receiving any such notice should therefore try to agree whether they want to buy the freehold, and are able to raise the necessary finance. The Act allows acceptance by a requisite majority, and sets out the procedure to be followed if the offer is accepted. Your Conveyancing Solicitor will be pleased to assist.
Should the freeholder fail to serve appropriate notices then there are provisions allowing the tenants to buy from the purchaser (as well as possible criminal sanctions against the seller. )
Tenants right to buy freehold – Collective enfranchisement
Many flat-owners are well aware of the money they have to pay their freeholders and their managing agents, and may consider trying to buy the freehold reversion of their property even when the freeholder does not wish to sell.
The law provides a way for tenants to do this, known as ‘collective enfranchisement’. Fridaysmove can assist with this, including arranging a Conveyancing Solicitor to handle the legal work.