Property might be unmortgageable - what happens now?

[Welcometomyhouse]

Evening.. I was going to post this in the property section but thought there would be more traffic here. Just wondering if anyone has been through a similar situation and what was the outcome?

I’m a first time buyer purchasing a first floor flat on my own. The lady who is selling the property inherited it from her mother who lived there for 20 years. There is a mix of houses and flats on the street, however only my downstairs neighbour and I are leasehold, whilst all the other properties (including the flats) are freehold. When I went to view the property I asked the EA if there were any services charges and they explained that the management/maintenance company no longer existed. In the 20 years that the woman lived there she never had to pay any service charge nor did anyone request any payment from her. The daughter has tried to contact the company multiples times but has not been able to get in touch with anyone, so she believes that it has dissolved. I believe this to be true as all the communal areas are overflowing with weeds etc and it is clear that no one has maintained it for some time now. The gardens are kept tidy, grass cut etc but that’s because the neighbours do it themselves.

All searches have come back and I’ve had my report but my solicitor is still awaiting a response from the other side in regards to this issue. The vendors solicitor didn’t send sufficient documentation in regards to this other than “the sellers mother hasn’t paid any service charges for 20 years and we believe the company has now dissolved”. They’ve told us that they will have an indemnity policy put in the contract to protect me incase someone tries to come after me in the future and demand payment. My solicitor isn’t happy with this and has said she doesn’t think the mortgage lender will be either. I don’t understand all this legal talk but I went into her office today and she gave me a few examples which helped me understand the severity of it.

1.	The management company own the outside of the property and are suppose to insure it. Because the company no longer exists the building is currently uninsured and if both flats went up in flames/flooded etc we’d be screwed. 

2.	The management company are responsible for dealing with any repairs etc. We are suppose to pay a monthly service charge to them and in return they deal with any repairs. Because they no longer exist there is no agreement in place which explains who is responsible for what and who pays for what. I’m on the first floor and if a slate fell off my roof and there was water gushing through my ceiling, technically both my neighbour and I would be responsible for paying for the repairs but they could just tell me to piss off and there’s nothing that I could do about it. If the management company was still active it would be their responsibility to enforce that they pay half the bill. The same could apply if they came to me with an issue, I could just tell them to get lost. 

3.	Similar to the above issue. If my downstairs neighbour was playing loud music until 1am, the only thing I could do is go down there and ask them to stop. Again, If the management company existed it would be their responsibility to enforce this. 

4.	If nobody has paid any services charges for over 20 years, then there might not have been any repairs done on the building in quite some time.

Whilst waiting for the other side to come back, my solicitor suggested that I knock the neighbours door to see if I could find out any more information but the lady downstairs wasn’t in today. I’ve left a note with my phone number on asking her to give me a ring to have a quick chat. My solicitor is doing everything that she can but has been honest with me and said that the property might be unmortgageable unless the vendors solicitor can provide sufficient documentation, however I’m not confident that she’ll be able to if the company no longer exists… it will then be up to the lender to make the final decision. It is out of our control now.

Apologies for the very long winded post. My anxiety is through the roof at the minute and it’s awful being told this after 9 weeks of waiting around. Surely things like this happen all the time and there must be a way around it?

It’d be unusual for the management company to have disappeared without someone else taking over.

Does the freeholder still exist?

Was it a management company, or a management committee? Is there a requirement in the lease for one to exist, meaning that both flats are now in breach? Does the freeholder know that there’s no management company anymore?

To be honest, I’d be running really far away from this if no company can be found, and no maintenance has been done. It’ll be disappointing, I’m sure, but it could be a nightmare down the line… even if nothing bad happens while you’re there, you’d find it an absolute nightmare to sell on. You’d basically need a cash buyer who was happy to go against their own legal advice…

But if need a mortgage, it’s probably a moot point; they're unlikely to agree to this.

Very odd. How long is left on the lease? There must be ground rent to pay to the leaseholder, surely?

Frankly, I'd walk away. If nothing else ask your solicitor if you could be liable, as the current occupier, for 20-odd years unpaid service charges and ground rent. Whatever the answer, I wouldn't touch this with a barge pole.

I would run a mile from this, it’s going to cause you so much trouble down the line

They’ve told us that they will have an indemnity policy put in the contract to protect me incase someone tries to come after me in the future and demand payment

This sounds reasonable to me and I remember something similar with the property I bought in Feb. It was something about road access and my solicitor suggested we did this unless I managed to get an affidavit from a neighbour who could confirm everyone had access down a lane. The affidavit had to be someone who'd live there 20+ years. I wonder if your neighbour has been there as long and could maybe do the same. Your solicitor draws up a document and then the neighbour just signs it saying that there has been no service charge or management company on for X amount of years. Or words to that affect

Run a mile! I’d find another property. They need to sort this out and then put back on the market.

Justvwalk away and find something better. My mum bought a freehold house on a development with a mix of leasehold and freehold. There were 4 different management companies in 15 years. One folded and all the contributions into the sinking fund disappeared.
Honestly don't do it.

So the other flats are threshold so the same just apply to them surely re. Insurance. And how do they expect the upkeep of the building to be paid for?

Freehold not threshold!

A mortgage provider will definitely need the property to be insured, let alone the rest of the legal stuff! I’d walk away from this one tbh, no maintenance in 20 years is a very bad sign.

@JasonMomoasgirlfriend there’s a world of difference between an indemnity policy for a standard issue like road access or lack of window certification, and a flat with an absent or unknown management company.

The indemnity policy will stop OP being chased for the outstanding service charges, but nothing else…

But OP, I think you need to clarify if the ground rent is paid separately or if there is also no known freeholder…

No way would I buy this.

To be honest I would walk away

I wouldn’t buy a leasehold property anyway, but in this case definitely not

By management company, are you referring to the residents management company detailed with the lease or are you referring to the managing agent. They are two very different things.

If your lease details a residents management company, it is them who appoints a managing agent to undertake their responsibilities detailed within the lease. If there is no managing agent then it’s the members of the management company (I.e the Leaseholders) who would have the responsibility to ensure the covenants contained within the lease are adhered to.

Sometimes you get leases where there is no management company involved, the Landlord retains responsibility.

If there is a management company contained within the lease then I’d be looking on companies house to see the status and to see who the directors are.

I’d be asking my solicitor to obtain the mem & arts for the company so I knew exactly what I was committing to.

The biggest concern for me would be where the landlord is, are they contactable because you’ll need them if you need/ want to extend your lease.

I work in Property Management so have some understanding of this. When I bought a flat, I picked up things in the lease that my solicitor hadn’t. Funnily enough, it was a similar thing that other residents always say to us they knew nothing about and I never understood how they didn’t know before. Obviously now I know, the solicitors don’t understand it themselves!

Also, service charges are based on what is actually spent on the block. No one can demand anything from you if they haven’t actually been doing anything or incurring any costs.

@TakeYourFinalPosition the management company are the freeholder... sorry I should have said that in my op.

My solicitor has looked them up on companies house and it doesn't say anything about the company going bust or if they are still active. They changed addresses in 1989 but that's all she can find. I spoke with another neighbour tonight who lives in one of the flats across the street and she said that she's never had to pay any service charges. I was hoping to catch the lady who lives in the downstairs flat but she wasn't in. I've left my number so hopefully she will ring me at some point this week so I can ask her if she's paid for any repairs since moving in, she has also lived there for 20+ years.

I might have to walk away. It is absolutely devastating tbh. The flat is cheap compared to most properties in my area. In a lovely town, newly refurbished and decorated. Properties like this one at this price rarely come up.

To clarify the management company is the freeholder...

are there more than 2 flats in the building? and are the upstairs ones 'share of freehold'? that was implied in your post. If that is the case, then the owners of the upstairs flats must own a share of the management company, so maybe you can get in touch with them to find out how it works.

Even if it's mortgageable now there's a good chance it won't be in a few months when the PAS 9980 scandal hits. It's going to be worse than the current EWS1 fiasco.
I wouldn't touch any flat for at least a few years.

Sorry if I've not explained it very well @parietal. This is all new to me so I'll try and explain it as best as I can. There are 4 flats in each block but we all have our own front doors. There is no communal area. My front door is on the front of the building with stairs inside leading up to my flat and my downstairs neighbours front door is on the side of the building. All of the flats in on the street have this lay out.

It is only is our flats (my downstairs neighbour and I) that are leasehold. The others, including the two flats that are adjoined are freehold. I know my solicitor was confused by this.

I hope that makes more sense @parietal

I might have to walk away. It is absolutely devastating tbh. The flat is cheap compared to most properties in my area. In a lovely town, newly refurbished and decorated. Properties like this one at this price rarely come up.

This is probably why it’s cheap though. No service charge in 20 years is a huge red flag, buildings need to be maintained and once you buy it maintenance becomes your responsibility. Have you had a survey done?

Also can you ask your freehold neighbours if they purchase the freehold and, if so, how?

I don't think the seller even realises it's such an issue @mobear. I think she just wanted a quick sale after inheriting it. It was actually overvalued by the mortgage lender by 10k. The only survey I've had done is the one that the mortgage lender has done...

Sorry I'm getting mixed up @mobear. The mortgage lender has done the valuation, so no, I've not had a survey done...

I would walk away. Imagine what a nightmare it will be to sell.

I use indemnity policies to solve a lot of problems at work (commercial property) but I wouldn't like to use it for this one.