Buying a freehold property means owning both the home and the land it sits on. It’s known as the preferred tenure for a reason; it offers complete control over your property, giving you a say on any maintenance and improvements, as well as the associated costs. It comes with long-term security, as you don’t have to worry about pricey lease extensions, along with the added benefit of increased property value.
So, if you’ve bought a property on leasehold terms, it might seem as though buying the freehold is the obvious next step, but it’s not as straightforward as that. It depends on the type of property you have (house or flat) and the complexity of your individual situation.
On top of that, the recent Leasehold and Freehold Reform Act 2024 is set to make buying the freehold cheaper and more accessible. With changes still pending, for some leaseholders, waiting until the act comes into full force may be a smart move.
With all that in mind, here’s what you need to know about buying a freehold.
Why buy the freehold?
Having the freehold removes many of the obligations and frustrations associated with leasehold ownership. For flat owners, it allows you to get rid of unreasonable landlord-controlled service charges, such as arbitrary maintenance costs (e.g. the upkeep of common outdoor areas) and ground rent.
As a freeholder, you’re no longer dependent on a landlord to make decisions regarding your property, regaining direct control over maintenance management, building insurance, and lease extensions (which then become free). What’s more, purchasing the freehold can add significant value to a property, particularly when lease terms are below 80 years.
Am I eligible?
Your eligibility to buy a freehold depends on several criteria. For flats, the following must be met collectively:
- The building contains at least two flats.
- No more than 25% of the building is used for commercial or non-residential purposes.
- At least two-thirds of the leaseholders own a long lease (originally granted for at least 21 years).
- At least half of the flat owners in the building must agree to buy a share of the freehold.
Process overview: step by step
If you think you are eligible, these are the steps you’ll need to follow to start the process of buying the freehold:
1. Speak to your neighbours
Since collective buy-in is mandatory for flats, you cannot proceed alone. It’s best to start the discussions with neighbours early on, ensuring that you secure the required majority. If you’re all unhappy with the current situation and costs, this should be a relatively easy conversation.
2. Get a professional valuation
The next step is to find out how much the freehold will actually cost you. An RICS Registered Valuer specialising in enfranchisement will be able to provide an accurate valuation of the premium you will have to pay. While this does involve paying a valuation fee, it’s an important step – relying on incorrect estimates could lead to disputes or, worse, a failed purchase altogether.
3. Consider all transaction costs
Beyond the valuation and the premium itself, you will need to account for the other costs involved in buying a freehold. This includes solicitors’ and legal fees (for both parties) as well as Stamp Duty Land Tax (in England, it’s applicable to properties exceeding £125,000).
4. Arrange your finances
Now that you know the realistic figure of purchasing the freehold for your property, you’ll need to figure out your finances. The majority of leaseholders choose to refinance or extend their mortgage to fund the premium. Note that lenders may request a valuation report before approving additional borrowing.
5. Appoint a specialist solicitor
Not every solicitor has experience in the enfranchisement sector. Appointing the right specialist will ensure compliance with all the relevant statutory procedures. They will handle all documentation and notices for you, protecting your rights throughout the process.
6. Set up a participation agreement (flats)
For flats, it is common to establish a participation agreement – a document legally binding the participating leaseholders and helping prevent last-minute dropouts. It essentially guarantees that everyone involved commits to this decision, both procedurally and financially.
7. Serve the Formal Tenant’s Notice
The statutory process begins when your solicitor serves the Formal Tenant’s Notice on the freeholder, requesting the purchase of the freehold. Issuing a formal notice is safer and more enforceable than informal negotiation, hence why it’s the recommended route.
The landlord then has two months to respond, either by opening negotiations, providing reasons for disagreeing, or simply agreeing to the sale. If the parties cannot agree on the price or terms, the matter can be referred to the First Tier Tribunal for further determination.
What if it’s just a house?
We’ve discussed the process for flat owners, but what does freehold mean when buying a house? In some cases, new-build houses are also sold under leasehold terms, meaning homeowners still have to pay ground rent and service charges to a non-resident freeholder. Although the Leasehold and Freehold Reform Act will ban the sale of new leasehold houses, this ban will not apply to existing house owners.
The good news is that buying the freehold of a leasehold house is usually more straightforward, as there are no neighbours to consider and, therefore, you can proceed individually. However, it is still highly recommended to follow the statutory route, obtaining a professional valuation from an RICS Registered Valuer, together with legal advice from a specialist solicitor. This will not only ensure all notices are correct, but also allow for a formal Tribunal recourse too, should negotiations fail.
Keep in mind that, just like with flats, Stamp Duty Land Tax will also apply if the freehold premium of your house is over the threshold.
Alternatives to buying the freehold
If buying a freehold is not currently a viable option for you, here are your alternatives:
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Obtaining the Right to Manage
One of the key announcements from the Leasehold and Freehold Reform Act is to make it easier and fairer for leaseholders to exercise RTM (Right to Manage). RTM allows flat owners to form a company together and take over the management responsibilities of the building, without buying the freehold. It is a cheaper and more effective option, particularly if the main problem is poor management, rather than ownership.
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Lease extension
Another option is simply extending your leasehold. It may be a lot less complex than enfranchisement, though it can become costly when the lease is short and the marriage value applies (the theoretical increase in your property value upon the extension of your lease). For instance, if your lease is under 80 years, you will have to pay 50% of the marriage value to your landlord, as part of the extension costs.
It’s important to note that, under the new law, the marriage value will be abolished, which is expected to make lease extensions cheaper for leaseholders. So, if your current lease is comfortably above 80 years (at least over 82 years), it could be worth waiting for the reforms to take full effect.
When to think twice
Buying the freehold may not be the best route for every homeowner. For example, if your lease terms are already favourable and service charges are reasonable, there may not be a need to rush into it. Equally, if the enfranchisement is particularly complex, this step could become disproportionately time-consuming and expensive.
Furthermore, following the ban of selling new leasehold houses in England and Wales, the process of buying the freehold of a leasehold house will become easier, as most buyers will be offered the freehold from the outset. Therefore, if you’re planning on buying a newly built house, the new laws may affect the timing and costs of your purchase.
Final tips
Buying a freehold property offers full control and long-term value, so it’s understandable that many leaseholders are looking to purchase the freehold.
However, the process can quickly become complex, so following a statutory route rather than informal shortcuts is always recommended. Working with a specialist will not only provide you with expert advice and legal guidance but also reduce the chances of disputes.
Get in Touch
If you’re thinking of buying a freehold, whether for a flat or a house, or are seeking to extend your lease our knowledgeable team of RICS Registered Valuers and Chartered Surveyors at Trinity Rose are on hand to support you every step of the way. Get in touch for a valuation and professional enfranchisement services.