Purchasing a Freehold can come with many benefits, including control of management and length of leases, however, as with anything, there can also be disadvantages such as increased costs and responsibility/liability for the building. Here we weigh up the pros and cons of buying a freehold through Collective Enfranchisement.
If you purchase the freehold, the nominated purchaser, (whether that be an individual, a trust or a company created by participating leaseholders) will become the freeholder of the building. Therefore, the management of the building is now in your control and you are able to make decisions on the management of the building that you may have not been able to do previously. You can, of course, leave this in yours’ and other leaseholder’s control, or you can choose and appoint your own managing agent.
The value of a property may decrease as leases become shorter, this can also have a knock-on effect for mortgages as some providers won’t lend against a property declining in value as this would be deemed high risk. By owning the freehold, it means you can extend leases up to 999 years, as well as having the opportunity to update and change any unfavourable small print, therefore increasing their value and making properties more attractive to lenders.
Whilst this can be a huge benefit to you, on the other hand, the amount of responsibility and liability for managing a freehold can be an overwhelming and time-consuming task. The amount of ever-changing legislation that you need to keep up-to-date with, combined with the understanding to then manage the building in line with the legislation, can make purchasing the freehold an unattractive pursuit.
The way to tackle this would be to appoint a block managing agent, such as Seraph Property Management. A management company will often have a number of resources and a team of people who can combat the legislation updates as well as having software and procedures in place to manage a building, ensuring compliance and working with you to ensure the building is being managed effectively.
Another disadvantage to owning your own freehold is the potential disputes and issues that could arise between you and your neighbours. These disputes could range from chasing late payment of service charges to tackling anti-social behaviour. You will need to be able to communicate with all leaseholders, as well as residents, often having to remain impartial and unbiased while maintaining good relationships with leaseholders and residents.
The cost of an enfranchisement process can also be an unattractive prospect. The lengthy process and statutory requirements you’ll need to meet, as well as funding the cost of solicitors and valuers, can be challenging. There are a number of costs associated with this process which also include, professional advisors and surveyors, mortgage and loan arrangement fees, covering existing freeholders reasonable costs, land registry title changes, stamp duty or land transaction tax and any maintenance/repair costs for the building.
Overall, you can see the vast pros and cons of purchasing a freehold, and whilst there are several benefits to doing this, you will need to ensure that you have the ability to finance this and then the time and knowledge to manage the building going forward. Although, if you are looking to purchase a freehold but not necessarily looking to manage this over time, then appointing a block managing agent would be a more favourable option.
If you are looking to appoint a block managing agent for a recent freehold you have purchased, please contact us for more information.