What can you expect to pay buying the freehold on a leasehold flat?

If you own a leasehold flat and want to buy the freehold, one of your first questions is likely to be how much will it cost?

What you’ll soon discover, however, is there is no set price. It depends on a variety of factors, including the existing length of your lease, the flat’s value and the ground rent that you pay.

It also depends on negotiations with your existing freeholder and a surveyors’ valuation. 

But in general, the shorter the lease remaining, the higher the cost tends to be.

There is also the cost of extending your lease, but if this is done after buying the freehold – so you and any fellow freeholders are effectively granting yourselves the extension – the only cost will be the legal fees.

Here is an outline of the costs to take into consideration if you’re looking to buy the freehold.

1. Legal fees

You will need to begin the process by finding out how many other leaseholders want to get involved. This is because a majority is required before you can proceed.

You will need to instruct a solicitor to ensure that your building qualifies for enfranchisement, the term given to the process.

Lucy Lafferty-Brown, of Zen Move solicitors, said: ‘The best way forward is for one of the participating lessees to become the point of contact for the solicitor acting. Your solicitor will write out to all lessees to make sure they are all invited to participate in the purchase and, hopefully, to secure the ‘requisite majority’ of lessees to participate.’

Usually, the more flats that take part, the cheaper the individual legal costs will be. The reason for this is that the time spent on the exercise is similar, regardless of whether there are two or thirty flats. 

The legal fees are likely to range from £800 to £1,000 plus VAT. This would be for up to four flats and then £250 for each additional flat.

Mrs Lafferty-Brown added: ‘You’ll need to keep a close eye on costs or they can run away from you. Employing additional people such as a project manager is not necessary. A solicitor who is experienced in this area will be sufficient and be able to get the job done quickly and efficiently within a set time frame.’ 

2. Valuation fees

You will also need to consider the cost of a specialist surveyor to prepare a report that will let you know how much the freehold purchase is likely to cost.

Mrs Lafferty-Brown explained: ‘Knowing the cost of the valuation from the surveyor is a good thing, as other tenants who were previously doubtful are more likely to join in knowing this information and therefore making the transaction cheaper as a whole.’

The fees vary, but roughly you can expect to pay £500 to £600 per flat.

3. Tenant agreements

It is a good idea that all participants enter into a ‘participation agreement’.

Mrs Lafferty-Brown suggested: ‘This is important because if anyone changes their mind it could jeopardise the purchase, as one leaseholder dropping out would increase the share that the remaining participating leaseholders would each need to pay, so this could be a potential unexpected extra cost if there is no participation agreement in place.

‘If this has been organised, then you can easily avoid having to deal with this unnecessary extra cost.’

A solicitor can draft a bespoke participation agreement for your situation. The participation agreement would be around £250 per flat, which should less if there are more than flats involved.

4. What is the cost of buying the freehold?

This is a hard question to answer with accuracy as it depends on a number of variables, according to Mrs Lafferty-Brown. 

These include the number of flats involved, what the value of the land is in the local area, and whether the building has development potential. 

There is a helpful calculator on the Leasehold Advisory Service website which can help provide an indication of what the price will be.

You will, however, get a more realistic estimate once you receive the freehold valuation report from your surveyor.

5. Freeholder’s fees

In addition to the solicitor’s legal fees, your solicitor also manages the freeholder’s undertaking for reasonable costs that accompany the buying of the freehold.

You have to pay for their costs associated with hiring surveyors and taking legal advice. This cost is likely to be in the range of around £1,500 to £2,000.

6. Setting up a limited company

Mrs Lafferty-Brown recommends leaseholders to set up a limited company to go about the role of being the freeholder, which comes with responsibilities such as producing accounts and an annual return. This can be set up for less than £100 via the Government website.

You will be responsible for the legal fees of the current freeholder’s solicitor, which will be dependent on who they use, but this is likely to be £1,500 plus, as it will need to obtain similar advice.