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?

Walk away. Who will be responsible for major repairs?

I used to own a flat like this. No service charge paid.

Definitely look into point 1. In my case the two flat owners were the directors of the management company. After the original one dissolved. No service charge was paid but costs like insurance were paid as we went along. Point 2 it will be in your neighbours interest to maintain the property, the roof is both of yours as are foundations (rising damp). FWIW I was in the first floor too and did have a roof leak, we split the cost no problem. 3, I’ve never known a management company to enforce noise restrictions, if the neighbour next door (freehold) made a noise then I would have to go to them directly. 4 a survey will raise any concerns.

Tbh of you want a managed flat you’re looking at the wrong property. My flat was perfectly mortgageable, last one was June 2020 and sold in May 2021.

This is why it is cheap! You need to walk away, it sounds like a potential nightmare.

Quite possibly the other flats own “share of freehold” (it’s very rare to have a true freehold flat).

If that’s the case, the other flats in the block “own” the building and should set up a management company etc to manage it.

The fact that this hasn’t happened, suggests that minimal maintenance has happened to the building. This by itself would make me run a mile.

If the other flats are true freehold flats (not share of freehold). Then the property is likely unmortgagable.

Overall: run. Sorry.

You need to walk away or at the very least pay by for the most comprehensive level of survey. If no one has been maintaining this building it night need costly work soon and without a sinking fund you and all the residents will be screwed.

Don't buy. Walk away.

No maintenance has been done for 20 years. It will almost certainly need a new roof, probably a new heating&hot water system and quite possibly some serious electrical work all within the next 5 years as generally you can't expect much more than 25 years of life from big systems like that. If it was being sold as freehold that would be enough red flag for me as paying for all that would be a nightmare. But this situation is even worse as noone is going to take responsibility for organising and paying for these big projects. The indemnity policy is not a solution - it will still leave you stuck in an unsellable home that isn't fit for purpose - it will mean no one can force you to pay for urgently needed repairs, which will just mean that urgently needed repairs don't get done!

Indemnity policies are not worth the paper they are written on. If there is an issue you would be lucky to get a pay out for it. They have ridiculously tight terms that often cannot be met.

Do not buy this property. It’s gutting for you but listen to your solicitor and take her advice. Walk away.

Taking out all of the issues about service charges and repairs how long is left on the lease? We bought a leasehold property and were not advised of any issues about the length of the lease. When we came to sell we were hold that the remaining term on the lease was too short (I think it was about 75 years so not short in my eyes) and that it would be unmortgagable and therefore was unsaleable unless wepaid to extend it before putting it on the market. It cost us £10000 which was all the equity in the property. In your situation it sounds like you wouldn't be able to extend it because there is no one to pay so you could be stuck with it.

If it bothers your solicitor now, it will bother your buyers solicitor when you want to sell.

For the mortgage company the biggest Red flag will be the lack of buildings insurance - their asset is totally unprotected and the solicitor can offer them any assurances on this. I saw a property that had similar issues ( though it wasn't a flat) it ended up being a cash only sale.

I can only add to what others have said - walk away. Even well managed leasehold properties with a properly constituted management company can be a pain to own. This sounds extremely problematical.

I used to own a leasehold flat which had a management company but they basically took £200 a year and did nothing for 12 years.

The weeds may not indicate anything, ours did not cover the gardening which was done between the properties.

Indemnity policies are often not worth paper written on. Who pays what share of work was detailed in our lease - there were 6 flats but we did not pay a 6th each, it was based on the value of the flats when converted which are some were then renovated some where given much higher shares.

What would concern me it likely means no work has been done for 20 years - this would mean you could be invoiced for 20 years worth of work in one go. We had this for 12 years work. Indemnity won't help with this. You would need savings to cover this - a surveyor could give an estimate of costs but if the roof and outside needs doing it could say be £10,000 each which you would have to pay. You could get a surveyor or maybe builders to estimate an amount if you have savings but you would be liable for it. You could say negotiate that off price but that does not give it you in cash.

The building definitely needs to be insured or you are risking the lot and it needs to happen asap.

There is the issue on ongoing management - you can apply in a leasehold flat to buy share of freehold but that takes time and you would ideally need downstairs neighbour to do at same time. But no idea how this would be done if management company aren't traceable.

The noise thing would not concern me as never go via management agent anyway.

We also bought a house that was unmortgageable, that meant we had to buy in cash but got a good discount. But we knew what the issue was from a surveyor and got it fixed. Then we sold to a couple with a mortgage no problems. But with a resolution it could be almost impossible to sell, you would need a cash buyer as a minimum.

It may be worth asking all other flats but its so complicated suspect mortgage company won't accept it and even if it does get through you would need cash for works and a lot of time to wait to get issues resolved. I would listen to solicitor. Sorry its so stressful buying and selling property.

I'd be running.

But in the meantime ask your solicitor if the management company owns the freehold and then has been dissolved does this mean the freehold as the asset has reverted to the Crown. Because that happens if a company is dissolved owning assets. Then you need to get to a Land Tribunal to sort it out.

Just raise the query because it may be the case. (Mind you, it could be a query you shout over your shoulder as you are running fast in another direction....... )

A management association surely needs to be started between the leaseholders to make sure the maintenance is done and insurance is purchased each year

The advantage of doing it yourself is that you don’t rip each other off

You can employ gardening people to come monthly and sort maintenance when it needs doing

You’ll put the money into an account each month and access it to pay for the insurance and general maintenance

Don't do it. We had a similar issue and had an indemnity put in place. We had terrible problems selling the property especially as we couldn't extend the lease with no freeholder. We were in the process of looking into buying the freehold with the upstairs resident but managed to sell - but for less than we wanted.

I would be getting out of this now. No maintenance in 20 years would really concern me. It is a shame but you will find something else.

At the end of the leasehold term, the property reverts to the landlord. You have a right to seek an extension on your lease as the years run down. You have no one to negotiate with. Mortgagees will run a mile from this property . It's for cash buyers at a discount.

Even if you manage, eventually, to get a mortgage you may well have problems when you want to sell.

NDN of my sister had real problems selling with different but old ‘who exactly owns this strip of land’ problem. At least 2 sales crashed.

Other houses are available.

This sounds like a nightmare, please walk away!

As a leaseholder getting the freeholder to do repairs etc is difficult enough even with proper arrangements in place. I recently had to go as far as issuing proceedings against a freeholder to get them to do repairs to a roof which was leaking into a flat. This cost me £1000 in legal fees. Don’t buy this flat!!

Can it be transferred to freeholder (no doubt with huge legal bills) as it's been so long?

See here
not sure if it is only new homes but Gov trying to reduce number of leaseholds.
commonslibrary.parliament.uk/leasehold-reform-in-england-and-wales/

This is seriously not the property you want to be buying as a first-time buyer! It is not "cheap" given all the issues which have been raised here and the examples that your solicitor has given you of things which can go wrong in this scenario.

I'd run a mile - not worth the stress, there are other flats and homes available