How do you assess whether buying a share of your freehold is a profitable thing to do?
Recently a client who is planning on selling his flat called us for advice. His situation is similar to many, writes Zah Azeem, Partner at Wimbledon based Chartered Surveyors Scrivener Tibbatts.
There are six flats in his building, four of which own the freehold. As the client has 137 years on their lease and no ground rents, his value of the share of freehold (on the face of it) is nominal, say £200 for a flat worth £400,000. This was also his understanding.
However, he has been advised by the estate agent that it would be easier to sell the flat on the basis that he has a share of freehold.
After further research, I found out that the other flat which does not have a share of freehold has approximately 50 years left on their lease. So I had to explain to our client that if they wanted a share of freehold, it will cost one quarter of the value of the interest retained in the other flat, which was approximately £60,000. So £15,000.
Understandably perhaps he could not understand why the other flat has anything to do with his sale, as he’s only interested in selling his flat for its best price, potentially with a share of the freehold. The technical answer is that he would be diluting the value of the freehold from the four current owners who would be dividing the premium of the other flat to five.
As he is selling his flat, my advice was not to bother buying its freehold, as the sale price would not be materially improved. The devil is always in the detail, so even though you might one day be in a similar situation, always seek a chartered surveyor’s advice as not all circumstances are the same.
If you would like to discuss something related to a property valuation, whether it be in Wimbledon, or anywhere else in London please contact me direct via email at zah@scrivenertibbatts.co.uk or call 020 8947 7040.
(Picture credit: Pexels.com_Charles Parker)
