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, sounds like an absolute can of worms.

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

So anyone in England who has bought a flat has made a choice that you look down on?

I only read the first page but check on companies house - you can do it free - as what the solicitor said slightly puzzles me. If nothing has happened with the company since 1989 it would have been struck off for failure to file accounts - there is an obligation to file annual accounts and also each year to notify the Person of Significant Control in the UK. If the freeholder (limited company) is struck off the register the freehold title goes to the Crown under the bona vacantia principle and you might be able to buy it back from the state. If the company still exists as the solicitor says it will have a registered office at Companies House and you could try writing to it there. It will also be required to have directors by law again published at companies house I think so you could try tracking down those people.

Not RTFT but one more thing to think about is how difficult it may be when you want to sell it and other potential buyers struggle to get a mortgage.

@RandomLondoner it's not about looking down on people. It's about knowing how fraught with issues they can be.
I waited longer to buy a house because I was aware through work of all the issues there can be with owning a leasehold property. I don't look down on people who own them, I just knew I didn't want to take the potential risks

If it is a block of 4 I would check that the 2 ‘freehold’ flats don’t actually own a share of freehold that is for the entire block of 4.

I lived in a block of 3 and 2 out of the three of us owned a share of freehold. We were entitled to asks for ground rent from the third but never did.

We then paid service charges to a management company for the maintenance.

I would get the deeds (land registry online, £3 each, instant delivery) for the two freehold flats and confirm the tenure of those.

The flat is cheap compared to most properties in my area

I'm not surprised; they've probably been down this road before and had buyers pull out (have you checked for earlier sale listings?)

I'm another who'd walk away, and certainly wouldn't go with an indemnity policy. They're a nice little earner for the insurance companies, but if it comes to it they'll most likely discover "something that wasn't declared" and refuse to pay

It might seem an attractive purchase, but do you really need the hassle?

I am reading all of your replies. Just feel so depressed at the thought of having to stay renting

The thing with property issues is that they don’t go away and disappear and have a tendency to pop up and bite you when you least expect it. So everything might be rosy for you until a few years down the line you need to sell the flat to move up the ladder and you can’t find a buyer to risk it.

If you are a first time buyer your finances are probably a bit stretched. I would walk away from this one, I know it’s hard, you have invested time and money and emotion on this flat, but it is all too easy to let heart rule head for a property when it should always be head ruling heart, especially when you are starting out ( unless your parents are secretly millionaire builders) .

@Welcometomyhouse

I am reading all of your replies. Just feel so depressed at the thought of having to stay renting

Surely this property isn't the only one?

I was buying at the bottom of the market for my first flat and it took me 6 months to find something but I hung on in there and got a lovely flat eventually.

If this flat is massively priced under anything else else remind yourself into not real, it's a mirage. It's selling a beautiful dream of a flat but it could be rotten underneath.

Can you widen your search area maybe?

I waited longer to buy a house because I was aware through work of all the issues there can be with owning a leasehold property

I doubt more than 5% of property purchasers in England could sensibly have type of tenure as a main reason for choosing between a flat and a house. Functionality, desirability and affordability would all be more important criteria for most people.

If it’s not mortgageable then you don’t get a mortgage on it and purchase something else.

Sorry OP, so disappointing when you thought you'd found something you could afford.

I agree with pp, it won't be cheap if you get hit with a whopping maintenance bill or service charge.

It's highly unlikely the other flats are freehold but as has been said, all the owners may own a share of the freehold (my old flat was like this).

I'm sure there have been threads on here before where leaseholders have been trying to track down absentee freeholders to try and buy the freehold and if they can't be traced, there is absolutely nothing that can be done.

Reluctantly, I think you need to walk away. And hooray for your excellent solicitor.

Why is your solicitor doing all the work? Surely it’s the vendors responsibility?

Exactly

Obviously OP needs to protect herself, which is where her solicitor comes in, but if all that's coming back from the vendor is the equivalent of a flappy hand what's the point racking up even more costs?

It's disappointing of course, but not as disappointing as watching storm clouds gather over what was supposed to be a lovely new home (and that's without the mental weight of worrying about it)

There’s no way I’d buy this. Even if you have to save up for another year or so to increase your deposit, you’ll thank yourself in the future.

The only person who should ever, EVER consider buying a flat like that is an investor who owns 100 of them purchased dirt cheap ans makes a profit if only 20% of them go tits up. If you buy this flat there is a very real chance you’ll end up declaring bankruptcy or with an uninhabitable house.

Walk - no, run - away. Honestly I know it’s upsetting and I feel for you but this has the potential to really ruin your life. It’s not worth it.

You have clearly not seen all the issues with leasehold lately @RandomLondoner. Cladding is just the start - there are extremely expolitative freeholders and indeed management companies who are screwing leaseholders day and daily with very limited comeback. The leasehold system is feudal and most other countries do not organise property ownership like this. Take a look at the National Leasehold Campagin. After being at the sharp end of lease issues and paying an eye-watering amount of money for a lease extension I could not ever recommend to anyone that they buy a lease (because that's what you're buying - not a flat) in the current circumstances. We will have to wait a little longer to see what reforms the government will actually put into law.

This can be resolved, but it will need the other leaseholder on board and a fair bit of legal work. Missing freeholders are not uncommon, look up leasehold and missing landlord, there's a fair few articles that will explain what you need to do. You can also book an online appointment with the Leasehold Advisory Service, who can talk you through it.

There will be a freeholder who owns the leases. It's the obligation of the freeholder to appoint a management company if they do/will not collect service charges and arrange maintenance. The lease to the property will have clauses saying how often the outside and inside areas have to be redecorated, how the communal gardens will be looked after. The freeholder will collect ground rent as well. Has your conveyancer contacted the freeholder? That would be a good place to start.

I agree with virtually everyone else - sadly you have to walk away. I know it's upsetting but this kind of thing can happen with property purchases. I once had to walk away from a house I really liked because there was a mine shaft very close. I was upset at the time but I have never regretted my decision. Please don't fall into the trap of telling yourself that somehow it will all be ok - it won't. Far better to regret missing out on a flat that you like than to regret being stuck in a flat that might be a money pit. Allow yourself to feel sad for a day then pick yourself up, dust yourself down and get back onto Rightmove.

Hi OP - I was in a very similar situation to you and this is what happened.

1.) you must get hold of the lease paperwork which is on the land registry for £3 (probs your solicitor already has this - but read it yourself!
You are buying a maisonette- defined as having your own front door. Which will mean there are no communal areas. So it’s just the structure and the roof which you guys share. The lease will give you more information on how this is it ought to be managed.

1. You can absolutely insure the property yourself and all the residents should be doing this. No way in hell should they all just let us lapse because management company is doing the off.

1. How long is the lease? - this is the deal breaker if it’s below 60 this is why it’s non mortgable and will be a cash only purchase

1. There is an insurance you can take out when you purchase called absent landlord or absent freeholder. In my case the seller paid for this for me and it’s just a few hundred pounds.

1. There is a free government body set up to help leaseholders. You can book a free telephone appointment and talk this through with them

1. Whatever you decide it will be a massive pain in the arse to sell. So only buy it if you think you will stay there for a long time. You won’t be able to buy and flip and it will be tricky to sell and move on up the housing ladder.

www.lease-advice.org/

🤞🏻 Good luck

Would not touch this
Walk away today

Run, run as fast as you can! You have a lifetime of horror ahead of you.

Every property we or or our kids owned has had major problems due to freehold/ leasehold complications. Properties become unsaleable.
Now we have a 4 yr old top of the market flat in an expensive city. The managing agent has given us all 4 yrs non stop grief. The freeholder ( a university college) does nothing. Both allowed a vey busy brothel to operate next to us and did nothing. We have £9,000 worth of damage from this and their airbnb tenants. ( airbnb not allowed). We have to pay! It is imperative to have legally sound arrangements. Your life could become hell. Don't do it.

Can't you extend the lease/get a new one? I thought that was easily done and a right these days. Yes, all the issues are hassle but I think they're resolvable, especially as someone has lived there for 20 years with no problem. We've twice had to take out indemnity in case someone came out of the woodwork to claim our drive/area in front of house. But sorting it all out will be time-consuming and adds cost and worry. So it depends how much you want this flat.