8 Tips for Selling Freehold Ground Rents

SALE written in colour letters

Selling freehold ground rents can be a daunting task but with the many arduous responsibilities that come with owning a freehold, it’s no wonder that many freeholders decide to sell. Perhaps you’re fed up with the constant management of a freehold, tired of chasing ground rent payments or are unable to commit the time required for this obligation.

We’ve heard many of such exclamations over the years from people who eventually decide to sell. But regardless of the reason, on selling your freehold you’ll be able to release yourself from the burden of management, remove the stresses and strains, and have the opportunity to enjoy your tied-up capital.

To make things a little easier for you, we’ve put together 8 tips for selling freehold ground rents. These will help to guide you from the initial consideration of selling your freehold, right through to valuing and finding a buyer for your freehold property.

Tips for selling freehold ground rents

  1. If not the leaseholders, know who you are selling your freehold ground rents to
  2. Always ensure that you have correct representation from a qualified solicitor
  3. Do not sign documents if you are unsure about them and without fully understanding what they are
  4. Understand the process and timescales before you set the wheels in motion
  5. Before issuing Section 5 offer notices, seek a price from a third-party buyer
  6. Attempt to collect any payment arrears from leaseholders prior to selling
  7. Understand your tax liabilities
  8. Ensure that the new landlord provides his details to tenants
  • If not the leaseholders, know who you are selling your freehold ground rents to

One of the most important things that you can do when selling your freehold property is to carry out extensive research. There are many different avenues for selling a freehold including; auction houses, private investors and of course the leaseholders. Each will have varying advantages and disadvantages, so it’s a good idea to find out which option will meet your requirements and offer the most benefits. 

Key points to investigate are the timescales to complete the sale process, the sale price that you are likely to receive, any requirements from the selling avenue, the reputation of the buyer or auctioneer etc, any reviews and crucially that there are no hidden fees.

  • Always ensure that you have the correct representation from a qualified solicitor

Selling freehold ground rents brings with it a number of specific issues and legal implications, which do not occur with other property sales. For instance, depending on your circumstances you may need to serve your tenants with a Section 5 Notice to offer the Right of First Refusal. This provides your tenants with the opportunity to buy the freehold before selling to another party. You must also supply the right paperwork within the right time frames.

It’s, therefore, a good idea to obtain advice from someone who knows their stuff and can guide you through the correct procedure. A qualified and experienced solicitor who specialises in conveyancing and property matters will be able to accurately check any documents that you are required to sign, will be regulated to handle money transfers and have insurance to protect you.

Before selecting a qualified solicitor, ensure that they have a proven track record of dealing with this type of property sale and obtain quotes for their services to represent you throughout the sale of your freehold ground rents. Once appointed, it is essential to ask your solicitor to explain your legal obligations and any requirements. Also, ask if there is anything you can do to avoid prolonging the sale, such as providing your identification and any property documentation. After this, you’ll need to keep your solicitor on standby for when the Section 5 offer notice expires.

  • Do not sign documents if you are unsure about them and without fully understanding what they are

Unless you’re qualified in the field or have prior experience, understanding the legal jargon that comes with selling a freehold property can be a tricky business. Nevertheless, it is imperative that you understand the timescales, costs and liabilities before committing to the transaction.

Of particular significance is the contract and transfer documents that will contain important details and terms which must be carefully checked before signing. Also, be aware that a deposit or full sums should be transferred in order to exchange contracts before completion.

  • Understand the process and timescales before you set the wheels in motion

By taking the time to understand the statutory timings provided by Section 5 of the Landlord and Tenant Act 1987 and other important timings for actions in the sale process, you’ll be able to diarise these events to ensure that you never miss a deadline.

You can find a lot of this information by searching online, speaking with industry professionals or with your solicitor. You must stick to these deadlines, otherwise, you could be looking at a really long, awkward journey.

  • Before issuing Section 5 offer notices, seek a sale price from a third-party buyer

Once you serve the Section 5 Notice to your leaseholders at a certain sale price, it is illegal to go on to sell your freehold for less. So, if you do not yet have a firm offer or agreement with the leaseholders, you should attempt to source offers from a range of buyers and consider serving notice at one of those prices. This will ensure that you are able to sell should the leaseholders not wish to buy. 

Remember that what a surveyor says your freehold is worth is not necessarily what a buyer will pay for it. And third-party buyers will only invest for a return on their money.

  • Attempt to collect any payment arrears from leaseholders prior to selling freehold ground rents

If you are owed ground rent or maintenance fees from tenants, it’s a good idea to attempt to retrieve those outstanding payments before you start the sale of your property. Although you can assign arrears to the new buyer, they may not give you any money for them as chasing arrears can be costly.

Ensure that you have demanded ground rent from tenants using the correct procedure as set out by Section 166 of the Commonhold and Leasehold Reform Act 2002. If you haven’t been doing this, you can download a free Section 166 template here and formally demand ground rent from your tenants for up to six previous years.

If you have difficult tenants to contend with or need any assistance with collecting outstanding payments, you may be able to appoint a solicitor to help. However, if you’d rather not take action to retrieve the payments, there are investors such as Freehold Sale who specialise in purchasing such properties. 

  • Understand your tax liabilities

When selling freehold ground rents, you may have to pay capital gains tax or corporation tax, so, if you’re already planning what you will do with the sale proceeds it’s a good idea to check if you’ll be affected. It’s therefore advisable to speak to an accountant or financial advisor who will be able to assess and explain any liabilities that you may have.  

You may find that you have tax exemptions or tax-free allowances. Furthermore, if you’re selling multiple assets you may benefit from selling them in different tax years subject to your gains and the tax liabilities.

  • Ensure that the new landlord provides his details to tenants

Once the sale of your freehold ground rents has completed, it’s time for you to relax and work out how to spend the capital you received. But before you get too comfortable, you may want to ensure that the new landlord has provided tenants with his information. If the landlord fails to do this, you will be either jointly or severally liable for any breach in covenant, condition or agreement under the tenancy.

Unfortunately, it doesn’t matter whether you have already provided tenants with information regarding the transfer to the new owner, as it must be served by way of a Section 3 Notice from the new owner. The new landlord can also face a criminal conviction and a fine for failing to comply, so it’s in their best interest to ensure that they notify tenants correctly.

If you’re not in contact with the new buyer to check that the Section 3 Notice has been served, get in contact with your solicitors who dealt with the sale.

Learn more about selling your freehold

Final thoughts

Always seek professional advice if you’re uncertain about any aspect of selling freehold ground rents. It can be a very simple process as long as procedures are followed correctly, and you choose a reputable freehold buyer or selling avenue. Lastly, take some time to consider what you will do with your extra capital once the sale has completed and how you will enjoy your spare time without your freeholder responsibilities.

Adam Lowe

Adam Lowe

Adam has worked in the property sector for 20+ years. He specialises in the ground rent and freehold reversion space, providing services to clients from private landlords to corporate investors. Freehold Sale launched In 2013 where Adam enjoyed success building and managing freehold portfolios with partner companies.

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