We're trying to buy our flat's freehold from the council: Is the £11,026 they're charging us a rip off or fair?

My partner and I are in the process of buying the freehold of our flat from our local council.

Our flat has 82.49 years remaining on the lease. We are being offered a new lease of 999 years with a share of freehold value of £600,000 for the cost of £11,026.

Our annual ground rent is £10 per annum (peppercorn) and annual Service charge is £1,206.

Our neighbours downstairs have 172.49 years remaining on their lease because they already extended by 90 years in 2023.

Their 999 year lease with a share of freehold value has been put as £555,500. The council is only charging them £123 and says that because of the lease extension their premium is adjusted accordingly and is considerably lower.

My main question being is the £11,026 figure for us fair?

Second, the Council's valuer wasn't told about the roof's poor condition, which our structural survey flagged at purchase as being category 3. 

Under the current lease, the Council (as freeholder) is responsible for roof maintenance. 

Big purchase: Our reader wants to buy a share of the freehold with their downstairs neighbours from the council. They are both currently leaseholders

Since the roof now needs immediate repair, surely this affects both the freehold value we're acquiring given the immediate maintenance works we’re needing to carry out (approx £7,000 of works). 

If we paid for another valuation, and armed them with information re the roof, are they likely to come to a meaningfully lower figure?

Final question, is there any merit in first buying the share of freehold and then later granting ourselves a long lease? Could that potentially save any money?

Ed Magnus of This is Money replies: First and foremost, well done for sorting this now.

Leaving it much longer would have seen your lease drop below 80 years, which will have likely made it a lot more expensive.

This is because under current rules, homes with leases below 80 years usually face big increases in the cost of extending their lease and buying a share of the freehold due to something known as marriage value.

Marriage value is the increase in value of a leasehold property as a result of a lease extension. 

Put another way, it's the financial benefit that results from merging part of the freeholder and leaseholder interests, hence the term 'marriage'.

Under current law, where the unexpired term of the lease exceeds 80 years, no marriage value is payable. 

However, when a lease drops below 80 years the marriage value must be split 50:50 with the freeholder.

I typed a generic zone three London postcode into an online lease extension calculator based on your scenario. It suggested extending the lease by 90 years would cost between £9,000 and £12,000.

However, it said if you were to wait and the lease were to drop to 79 years remaining the estimated premium jumps to £38,000, some £26,000 more than today's estimate.

While some leaseholders with short leases may be better waiting for further development on the Leasehold and Freehold Reform Act (2024), which promises to make it cheaper and easier for people to extend their lease or buy a share of the freehold, the general advice for those with lease of 80 years or more is to crack on, rather than wait.

This is because there is no guarantee that it will become cheaper in future and we are still unclear as to what the new calculation method will be and when the rules will come into force. 

For expert advice we spoke to Linz Darlington, director of leasehold extension specialists, Homehold and Vanessa Griffiths MRICS, a leasehold reform and litigation consultant and Association of Leasehold Enfranchisement Practitioners (ALEP) Member (ALEP).

Are the figures stated fair?

Linz Darlington replies: When you purchase the freehold, the main thing you're paying the council for is the loss of their right to get the flat back at the end of the lease.

An £11,000 premium for your flat is about right if it's worth around £600,000.

Think of it this way: if you put £11,000 in the bank at a 5 per cent interest rate for 82.5 years, it would compound and grow to around £600,000. 

That is why receiving £11,000 today is legally considered equal to getting a £600,000 flat back in 82 years' time.

Your downstairs neighbour pays a tiny £123 because their 172-year lease pushes that 'payday' so far into the future that the right is practically worthless today.

Vanessa Griffiths adds: The recommendation would always be to seek independent valuation advice from an instructed valuer who can inspect the property and form a full opinion and reasoned advice accordingly. 

It is difficult to say without a full inspection and evaluation of the exact details.

Based on the figures provided, I am of the opinion that the £11,026 is reasonable.

Can they use the roof repair to reduce the premium?

Vanessa Griffiths replies: In regards to the roof, again I would seek advice from an independent valuer. It would likely depend on how the freeholder covers the repair of the roof. 

If it is through 100 per cent service charge this is indirectly covered by the leaseholders anyway so it weakens an argument that the freehold price should be diminished because of neglect of this obligation.

Fair price: The £11,026 is reasonable, according to expert Vanessa Griffiths

Linz Darlington replies: If you were buying a house, you could reasonably knock £7,000 off the purchase price because of a dodgy roof. Sadly, it doesn't work this way when buying a freehold.

While the council as freeholder is responsible for fixing the roof, the costs are simply billed right back to you and your neighbour through your service charges. You aren't taking on a new liability; you already owe it as leaseholders.

Even if you successfully argued that your flat is only worth say £596,500 today because of your £3,500 share of the roof bill, the compound interest maths works against you: knocking £3,500 off the flat's value reduces the freehold price today by about £65.

It isn't worth spending £500 plus on a new valuation to fight over pocket change. If you think the flat values are right, accept Lambeth's offer and get the deal done.

Could they buy the freehold first and then extend the lease later – and would that save them anything? 

Linz Darlington replies: Whether you buy the freehold or extend the lease, you’re essentially paying for the same thing – to compensate your freeholder for the loss of the flat back at the end of the existing term.

This is illustrated in this case with the two flats. The upstairs flat has 82 years left on the lease. The cost of buying its share of the freehold is £11,000. Once they’ve purchased it, they can extend the lease for no additional cost.

The downstairs flat has already paid to extend their lease to 172 years. Because they have such a long lease, the cost of their share of the freehold is about £123.

Whether you extend first or buy the freehold first, you only need to make a big compensation payment once.

But they should absolutely extend their leases to 999-years as soon as they’ve purchased the freehold.

In this case, there will be no charge for the lease extension – apart from legal costs, because they’ll control the freehold. It won’t exactly save them money, because while the lease extensions won’t cost, they’ll have already paid for the freehold.

It is important to do this because future buyers and mortgage lenders will want to see a healthy lease length in the future, even if they own a share of freehold. It can also avoid future tax issues.

The leaseholders should get advice as part of the purchase about how to hold the freehold title, which is usually done in a small company that they both control.

Vanessa Griffiths adds: Buying the freehold would equate to the same premium, it would not make any sense to buy the freehold and not instruct the solicitors to grant a 999 year lease at the same time.

Best mortgage rates and how to find them

Mortgage rates have shot up again due to inflation triggered by the conflict with Iran reversing hopes that the Bank of England would cut rates. This means those remortgaging or buying a home face higher costs.

That makes it even more important to search out the best possible rate for you and get good mortgage advice, whether you are a first-time buyer, home owner or buy-to-let landlord.

This is Money's partner L&C can help you with its fee-free mortgage service.

> Compare mortgage rates

> Find the right mortgage for you 

To help our readers find the best mortgage, This is Money has partnered with the UK's leading fee-free broker L&C.

This is Money and L&C's mortgage calculator can let you compare deals to see which ones suit your home's value and level of deposit.

You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes.

If you’re ready to find your next mortgage, why not use This is Money and L&C’s online Mortgage Finder? It will search 1,000s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.