How to purchase the freehold of a residential block

May 22, 2007
by News on the Block Editorial Team

Sue Kaye is the Chairman of Addison House Residents Management Company Ltd, a block in London. The leaseholders in her block purchased the freehold following a 15-year battle. She describes the process.

DOs 

• Make sure you have a strong Residents Association to organise the work. The work involved is intensive and requires concerted effort and good communication with the other owners. Starting without this is could be very difficult indeed.

• Have a Chair who will drive the whole process through. There will be times when you want to give up. A strong chair will be focused on achieving the goals and will drive everyone else. Appoint a person on the Committee to act as Lead. This is absolutely essential. Our block has 104 flats and no one wants to talk to more than 100 people. Also the Lead will know exactly what’s going on and provide up-to-date and accurate information to owners, as well as attending meetings with the Chair.

• Consult all owners to get an idea of how many people will want to support the purchase. You will need at least half the block’s support to continue. If you get less than 90% support, you have to be clear on how to raise the rest of the money as this could cost many thousands of pounds. Not impossible but a real issue.

• Call an Extraordinary General Meeting (EGM) to inform all owners of the details of the purchase. Make sure everyone is given as much information as possible. This will give you an idea of the level of support, enable you to deal with initial queries and ensure owners are involved.

• You should obtain expert advice including solicitors and surveyors. Do not consider starting without support from a good solicitor and surveyor. The surveyor will give you a good idea of the range within which the offer will fall. The solicitor will make sure you do not make obvious mistakes and will deal with owners and their solicitors if the queries are complex. If you don’t think you can raise the money for their fees, you should forget the whole enterprise.

Ensure you know how much is a reasonable offer. Your surveyor will advise you how the offer is calculated. This is far from straight forward but your surveyor will give you a view as to the value the offer is likely to be within – a range calculated according to many factors. When you negotiate the offer you can do so in the knowledge of what it is likely to be. If you don’t do this, you are working completely in the dark. Many owners want an idea of what they are likely to be asked to pay. If you can give them an idea, albeit as a very rough approximation, this helps to consolidate your support.

• Ask everyone to demonstrate their support in principle by signing a very simple form and providing a small sum to cover up-front costs such as the surveyors and legal fees. A sum of £100 to £200 is small enough to be readily available but is a tangible proof of the intent to support the purchase in principle. Make sure you say this money will be spent regardless of the outcome and is not returnable.

• Send clear information to all owners once an offer has been made and make sure the letters are easy to read. There will still be questions but try not to use jargon. Get every document checked by your solicitor before sending out. Again, this is absolutely essential. Do not send anything out unless your solicitor has seen it and has said it is okay. Include a form indicating that an owner does not wish to participate.

• Have regular meetings to check progress. Your solicitor should meet the Chair and Lead on a regular basis to monitor progress and decide on any necessary action. Involve other committee members as necessary but keep the size of the meetings as small as possible. Explore how you will raise the money for any shortfall in the money raised eventually. Discuss this with your solicitor. He or she can then talk to banks or financial institutions on a provisional basis. Alternatively, some owners may be prepared to buy more than one share. Include this possibility in the paperwork that owners receive and ask them to indicate if they would be prepared to contribute a second amount. Chase owners who have not paid by ‘phone and email. Once an offer is accepted, you will need to get the money within an agreed period of time. You will have to raise the money in some other way if there is a shortfall, and that needs to be organised. Someone needs to manage all this but ideally not the Lead as that person has probably done enough up to this point. The Chair should take this role.

• A rota should be compiled by the Chair (involving all committee members) to contact those who have said they are interested but have not yet paid, especially as the deadline for payment approaches. This should be done weekly. You will be fobbed off with promises that the money is ‘in the post’. Pin them down. Remind them that promises are not enough. Any queries that are holding up payment must be resolved immediately. Make sure every straggler knows when the final deadline will be. Where people do not want to participate, get them to put this in writing, either by completing the form you have sent them or sending you a letter.

DON’Ts

• Never underestimate how much time you will need. The whole process takes months of hard work, longer if you cannot agree a figure with the freeholder and you have to go to the Leasehold Valuation Tribunal. Make sure everyone is ready for what they need to do.

• Don’t forget the professionals. Always use independent solicitors and surveyors unless your committee members include a qualified solicitor and surveyor who are prepared to do the work. Ask what the professional fees are likely to be but recognise that it is very difficult to be precise in advance.

• Never lose patience or your sense of humour. You will be asked the same questions over and over again. Never show irritation or resentment. You have taken this task on, you need to see it through to the end however hard that may be. Carry out your tasks with as good grace as you can muster. Remember each person is only asking the same question once; you would do exactly the same if you were in their shoes.

Inevitably owners will ask what seem silly questions. Some people will misunderstand the information you have sent them or may not understand what you are trying to say. They may not have English as their first language and this can lead to confusion.

• On all accounts do not respond personally to solicitors acting for the other owners. Ask your solicitor to reply to letters sent by other solicitors. Avoid dealing with very difficult owners. If any owners become so difficult that you do not feel you can communicate with them, pass all communication to your solicitor who will know the most appropriate way to proceed.

• Never give investment advice as you have to be qualified to do this. If you do not have that qualification, you must be very careful when discussing these matters with all owners. You must make it clear that you are only giving your personal opinion if anyone asks you what you think they should do.

• Finally, don’t start the process unless you can see it through. There will be times you wonder why you took it on. You must be ready for setbacks. However, if you pull it off, the results are worth all the trouble.

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