One flat buys a share

The price 1 flat should pay for a share in an existing freehold company as a late entrant following an earlier freehold purchase event.

It is important to note that:

1. There is no methodology set down in statute for deriving the value of a share in a Freehold Company other than by collective enfranchisement, ie, to value the cost of 1 person wanting to buy in after the original enfranshisement application.
2. There is no obligation on the Freehold owning management company to allow a party to buy in either.

This sort of advice is however often requested by management committees and is a source of future profits to the existing Freehold shareholders.

There are 3 things that can be done with the premium received by the freehold owning company for selling a share:

• it can be kept by the company for future investment/development
• distributed to the existing freehold shareholders
• transferred and used towards shareholders service charges due

It is important to remember that the profits on sale of additional shares will be chargeable to taxation so advice from the Accountants to the Freehold/Management Company should be sought.

If there is no statutory valuation methodology how would a price be calculated?

It is generally accepted practice that the best method of calculating a reasonable premium is to look at the leaseholders statutory rights (to claim a 90 year lese extension), then to make an end allowance to reflect the benefit of being a Freehold shareholder as opposed to a lessee with a long lease.

The benefits of owning a share in the freehold rather than by owning a long lease are the infers democratic rights of control by virtue of being a shareholder with a vote.

To understand the valuation methodology for extending a lease please visit the lease extension section.

The valuers end allowance/premium added for the share in an existing freehold company is subjective but could be say 1-3% of the market value of the property.

In the spirit of the legislation the leaseholder requesting to buy a share in the freehold company should be responsible for both parties legal and valuation costs.