Negotiation of a claim to Buy Your Freehold or Enfranchisement and Costs

Negotiation of a claim to Buy Your Freehold or Enfranchisement & Costs

 

As both the landlord and tenant are likely to quote their “best case” valuation, the negotiation of an enfranchisement premium to buy your freehold is the most important element.

 

A good negotiator can save or gain his client substantial sums of money. It is for this reason why fees quoted for the initial valuation are not the most crucial aspect.

 

Case Study 1: Sub-urban 3 flats on 67 year leases (all participate)

 

Fee quoted for enfranchisement or to buy your freehold:

Surveyor 1: £1,200 plus VAT (£400 each flat)

Surveyor 2: £900 plus VAT (£300 each flat)

 

Saving of Surveyor 2 over Surveyor 1 including VAT at 17.5% = £352.50

 

Section 13 Notice for Enfranchisement (to buy your freehold) served by Tenants at £36,000 (Based on best case, with worst case figure at £45,000)

 

Counter-Notice for Enfranchisement (to buy your freehold) served by Landlord at £50,000 (Based on best case, with worst case figure at £45,000)

 

Tenant’s surveyor agrees a premium for £39,000 (Savings of £11,000 off counter-notice figure)

Tenant’s surveyor agrees a premium for £39,000 (Savings of £6,000 off worst case figure)

 

The savings of £352.50 on the initial fee quotation should therefore be considered in comparison to the ability of the surveyor to negotiate. This is particularly relevant where you have been recommended a surveyor/valuer and the fee quoted is slightly above that you have been quoted elsewhere.

 

Case Study 2: Prime Central London 3 flats on 46 year leases (all participate)

 

Fee quoted for enfranchisement or to buy your freehold:

Surveyor 1: £2,500 plus VAT

Surveyor 2: £1,500 plus VAT

 

Saving of Surveyor 2 over Surveyor 1 including VAT at 17.5% = £1,175

 

Section 13 Notice for Enfranchisement (to buy your freehold) served by Tenants at £310,000 (Based on best case, with worst case figure at £390,000)

 

Counter-Notice for Enfranchisement (to buy your freehold) served by Landlord at £450,000 (Based on best case, with worst case figure at £390,000)

 

Tenant’s surveyor agrees a premium for £355,000 (Savings of £95,000 off counter-notice figure)

Tenant’s surveyor agrees a premium for £355,000 (Savings of £35,000 off worst case figure)

 

The savings of £1,175 on the initial fee quotation should therefore be considered in comparison to the ability of the surveyor to negotiate. This is particularly relevant where you have been recommended a surveyor/valuer and the fee quoted is slightly above that you have been quoted elsewhere.

 

 

Important Note on Associated Costs:

 

In the event that tenants exercise their right (serve a Section 13 Enfranchisement Notice to buy their freehold) under the Leasehold Reform Housing and Development Act 1993 (as amended), the tenants will be liable for the landlord's reasonable costs in determining the premium payable (valuation costs) and those of the landlord’s solicitor in respect of dealing with the notice and in the event of the matter proceeding, the conveyancing costs. The tenant is liable for these whether or not the tenant proceeds (save as to the conveyancing costs).

 

In the event that the matter proceeds to a Leasehold Valuation Tribunal, both sides bear their own costs relating to the Hearing. As with the determination of the premium, the LVT can assess the legal and valuation costs.

 

Each party will also be responsible for their own costs during negotiations in most instances.