Inheriting a property is usually something that people dream of happening to them. But if you’ve inherited a freehold property, it’s a completely different kettle of fish. Chances are you won’t be moving into your newly acquired property and it’s likely instead that you’ll have a bunch of new responsibilities and tenants who will soon be making demands.
So, what exactly have you inherited?
A freehold, in basic terms, is the ownership of a plot of land and any building which stands on this site. As it is owned, it is also transferable and so it’s common for people to pass freeholds on to loved ones as part of their estate when they pass away. A transferable freehold is an immobile entity (land and/or property) and with no time limit assigned to ownership – essentially, it’s yours until you decide otherwise.
There are many different types of freehold properties, including:
- The freehold of a converted house containing several leasehold properties
- The freehold of a purpose-built block containing many flats
- A block of freehold garages
- Commercial freehold i.e. public houses, car parks, office buildings etc
- Freehold land
- Residential freehold (homes)
In this instance, we’ll be discussing freehold properties that are converted houses and purpose-built blocks. With properties such as these, not only would you inherit the land and the building upon it but of course, all the leaseholders too. Depending on the size of the building, the number of leaseholders could be quite substantial.
The leaseholders (also known as tenants) are the owners of the properties within your building. They each have a lease which dictates how many years they are allowed to live in your building, the amount of ground rent payable to you (if any) and their rights and responsibilities. It also states your rights and responsibilities as their landlord.
There could be numerous responsibilities that you have as a landlord, all of which will be set out in the lease documents. These may include insuring the building, repairing the structure of the building and maintaining communal areas. You might also have to collect ground rent and service charges, and provide management accounts, needless to say they all come with their own difficulties.
Complying with your legal obligations will also need to be a top priority. In many cases, failure to comply with such obligations can result in a criminal conviction and a hefty fine. For example, when you purchase or inherit a freehold, you are legally required to inform tenants that you are their new landlord.
This obligation falls under Section 3 of the Landlord and Tenant Act 1985, which also dictates how the notice should be served to tenants and in what time frame. You have just two months to serve this notice, so if you haven’t done so already it’s a good idea to act quickly. You can learn more about the Section 3 Notice and get a free Section 3 Notice template here.
Owning a freehold property is by no means easy and is only lucrative in some cases. Even if you have experience in managing a freehold property, it can be a stressful and time-consuming task. It’s no wonder then that many people who have inherited a freehold property want to know whether they can sell it. Not only will you avoid the hassle of management, but you can take advantage of a potentially large capital sum earned from the sale.
To answer the original question: yes, you can sell your freehold, but you need to bear the leaseholders in mind when you do so, as we’ll explain now.
How do you sell a freehold?
A freehold can be sold in several different ways but the most common are through private sales and at auction. Whichever selling avenue you choose; you will be required to issue Section 5 Notices to qualifying leaseholders in order to sell your inherited freehold. This is a legal obligation, as the lessees have what’s known as the Right of First Refusal. This means that they must be given an opportunity to purchase the freehold collectively before it goes up for sale on the open market.
The Right of First Refusal needs to be provided to qualifying leaseholders using a formal Section 5 Notice. As with the Section 3 Notice discussed above, this is a legal obligation and there are also many rules and procedures to adhere to. Furthermore, each selling avenue demands a different Section 5 Notice to be served and has varying procedures and time limits to adhere to. For example, private sales must comply with the Section 5A procedure, whereas auction sales must comply with Section 5B as dictated by the Landlord and Tenant Act 1987.
If you’re not familiar with the Right of First Refusal, this can all seem a bit daunting and confusing. However, we can help to make this a whole lot easier for you with our professional and hassle-free Right of First Refusal service. The best part is that we can typically serve Section 5A Notices at no cost to you and Section 5B Notices for a low-cost. Just give us a call or send us a message to find out more. Alternatively, you may need to instruct a solicitor to serve the Section 5 Notices, which can take longer and may be costly.
Once the Notices have been served; leaseholders are given a two-month period in which to respond to their Right of First Refusal notice. If they decline the offer, you can go ahead and make your freehold available on the open market, dependent on which Section 5 Notice was served. Therefore, if you served a Section 5B Notice, to leaseholders, you must legally proceed with the sale by public auction on exactly the same terms as were stated in the Notice.
If you wish to withdraw from the sale, you can do so at any time before signing legally binding sale contracts. However, you will not be able to sell the freehold under different terms to the original Notice within a 12-month period, without re-issuing new notices to leaseholders.
There’s no guarantee how long it might take to sell your inherited freehold at auction or on the open market. You may also find that it costs you a lot of money in fees, commission and legal expenses. So, if you’re hoping for a quick and inexpensive sale, you might want to consider a private buyer.
Selling an inherited freehold to Freehold Sale
Rather than going to the open market and waiting around for a buyer or taking the freehold to auction and losing money on fees, Freehold Sale can buy the freehold from you. We specialise in providing quick and easy freehold sales so that you can promptly release yourself from the arduous responsibilities of management.
Our team of experts will guide you through the entire sale process and manage every aspect of the transaction so that you don’t have to take on any of the stress. We’ll even prepare and serve Section 5A Notices to qualifying leaseholders at no cost to you, to ensure that you’re fully compliant with your legal obligations. All you’ll have to do is instruct a conveyancing solicitor to act on your behalf and manage the legal side of things.
Typically, the sale can be completed within four weeks of receiving a contract from your solicitor (this is in addition to the legally required two month period if Section 5 Notices need to be served) However, it is possible that the transfer of the freehold could take place sooner and you would receive the funds in your bank account in under one month.
To begin the sale process, all you would need to do is provide us with some basic details about your inherited freehold, including;
- The address of the freehold
- The number of units
- The ground rent payable under each lease
- A sample lease, if possible
You should be able to find this information in the lease documents for each property but don’t worry too much if you can’t as we should be able to access this information from land Registry. We will then be able to carry out our searches to determine the value of your freehold and make you a competitive offer within 24-hours. If you accept the offer, we’ll go ahead and serve the Section 5 Notices on your behalf, should you wish us to. If they decline their Right of First Refusal, we will progress with the sale.
If your leaseholders do accept the offer, we’ll continue to progress the sale on your behalf to ensure that it completes as quickly as possible for you.
This freeholder resource was originally published on 28th August 2015 and updated on 6th december 2019.