Q:I live in a block of 3 flats and 2 of us are keen to buy the freehold. We have had a valuation done and are about to send notice to the Freeholder. What comes next?
My understanding is that we have to form a company to buy it – will it then be treated as one transaction or can I use my own solicitor to look after my interests. The reason I ask is that the other flat owner is a partner in a firm of solicitors and intends to do it all himself. Is this ethical? I don't really trust him* and although I appreciate it would be much cheaper for him to do it, I can't help feeling that he is not always being competely honest and upfront with me.
*when I asked what happens if neither me or the 3rd lessee want to buy (as the freeholder wont then have to sell if he doesnt want to) he told me 'oh there are ways round that, we can just come to some sort of arrangement'
I wasn't aware of the auditing thing – thanks for the heads up.
Although I have to say – we do not use a bank account and manage the property ourselves. We are three owner occupiers who trust each other to manage the place appropriately. I do all the admin and maintain the accounts. So it's certainly not impossible.
It's very commonplace where I live to manage a freehold in this way as nearly all the Victorian properties in this town are converted into flats.
Creating a company keeps its assets, the freehold, separate from your assets, your home and if, worst possible case, any legal action is taken against the freeholder because you do not act correctly and within the law in your role as freeholder, and as managing agent too if you do it yourself, you would welcome that distinction.
Without a company you would have to completely trust all the other people who will co-own the freehold as you will all have equal control, and those co-owners change if a flat is sold. The situation gets worse the more co-owners there are, I believe if there are more than 4 you need a company anyway.
However, I take your points above about change of ownership etc and what could potentially happen if flats are let out which I'll certainly bear in mind if that happens here.
OP – the sites that one of the posters recommended are certainly worth a look and will be very useful for you.
guy
www.lease-advice.org.uk
The Survivor's Guide to Buying a Freehold: Unlock the Potential of Your Home – Enfranchisement Explained for Owners of Leasehold Property
http://www.amazon.co.uk/Survivors-Guide-Buying-Freehold-Enfranchisement/dp/1905261101/ref=sr_1_2?ie=UTF8&s=books&qid=1199883104&sr=1-2
or
Making Sense of Leasehold Property
http://www.amazon.co.uk/Making-Sense-Leasehold-Property-Callo/dp/1904053122/ref=pd_bxgy_b_text_b?ie=UTF8&qid=1199883104&sr=1-2
I am sure that there are other books available too.
The accounts of small companies have not required auditing for several years provided a note stating that you 'are taking advantage of Section 249A(1) of the Companies Act 1985 in not having them audited' appears on the balance sheet.
It is unlikely you could get by without a bank account unless you dispense with ground rent, and impossible if you manage the property yourselves.
Creating a company keeps its assets, the freehold, separate from your assets, your home and if, worst possible case, any legal action is taken against the freeholder because you do not act correctly and within the law in your role as freeholder, and as managing agent too if you do it yourself, you would welcome that distinction.
Without a company you would have to completely trust all the other people who will co-own the freehold as you will all have equal control, and those co-owners change if a flat is sold. The situation gets worse the more co-owners there are, I believe if there are more than 4 you need a company anyway.
As an aside, I believe those larger RMCs which make every shareholder a director are making a serious mistake. There should be a limited number of directors chosen for their ability to do their job and voted in and out at AGMs. I wonder how many of these have been asked for example if they are bankrupts, who cannot be directors under company law?
p.s. If that applies to you then you would have to be Company Secretary
You don't have to form a company to do it; me and my neighbours chose not to, as a company requires you to have a bank account and audited accounts etc.
We purchased ours through a mutually agreed solicitor. You have to pay your own solicitor's fees, plus the freeholder's solicitor's fees. So it would be a lot cheaper to use your neighbour. However, if you don't trust him, insist on using a mutually agreed solicitor. I don't think there's an ethical issue, though, as long as you can see the paperwork…you'd have to sign all your parts anyway.
I know I didn't answer your question about the process (I don't know the ins and outs – I left it with my solicitor to sort and did all the admin for the three of us!) but I hope that helps a little.
guy