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?

I've come accross this before, it's called Absentee Landlords or something. You can apply to the court to buy the freehold. The amount of the freehold is estimated and you pay it into escrow/the court holds it in case the freeholder shows up.

If the mortgage lender has approved it then you need to be thinking about who the other leaseholder is and 1. Is it likely they will want to pitch in and buy the freehold with you and if not then 2. Do you want to beome a home owner and a freeholder responsible for the costs of upkeep and paperwork involved?

My solicitor is doing everything that she can but has been honest with me and said that the property might be unmortgageable

Of course she is being honest! - her primary purpose is to protect her client's interests, & she is telling you that this property is not a good bet for you.

Unless you want to be tied up in expensive legal wrangles, quite possibly trapped in a flat you are unable to re-sell - WALK AWAY FROM THIS PROPERTY.

It is a nightmare waiting to unfold.
If you have to work this hard on finding out if it's a legally & financially safe bet for you - I can guarantee it isn't.

Listen to your solicitor's reservations, & sic her onto some different properties.
Between you, you'll find one that you like, & that she is comfortable will not be a millstone round your neck.

Good luck at this exciting time OP!

The flat is cheap compared to most properties in my area.

Of course it is!
Ask your solicitor why.

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.

I don't disagree that any of those problems exist. Their existence is not a good reason for a blanket avoidance of leasehold properties though.

What proportion of flat-owners have a lease problem so severe that it makes their particular flat a regrettable purchase? I would guess less than 1 in a 100.

And for those 1 in a 100, or even 10 in a hundred if you think the figure is higher, for what proportion of them would a different flat be the best alternative? So shunning leasehold is not actually the solution?

For almost everyone in that situation, the most appropriate alternative to a leasehold property with a problem is one without.

(On the subject of lease extension costs, these are now regulated, and as someone who has a financial interest on both sides of this, I think the prices if anything now err in favour of the leaseholder.)

It's very simple: don't buy it!!

@Welcometomyhouse

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

Don't get depressed, Welcome ... use this as an opportunity to congratulate yourself for not getting embroiled in an expensive mistake, & gear yourself up to find the next opportunity.

You will find something in the price range if you look at flats that 'need updating' etc - but please, PLEASE ensure that when you do, you pay for a separate survey from your mortgage provider.
The one they make you pay for is only to protect their interests, not yours - & if you are buying a bit of a doer-upper, you need to be totally sure that the work that needs doing is either purely cosmetic, or small, manageable jobs that won't cost you an arm & a leg while you are also shelling out on the mortgage.

@Welcometomyhouse

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

@Welcometomyhouse not as depressed as you would be investing your hard earned money as a deposit and tying yourself to a long term mortgage for a nightmare property.

I know you're disappointed and I know you're finding everything overwhelming but just ask yourself simple questions. How realistic do you think it is to own a property and yet not be able to prove the building's insured? and how realistic is it to own property and not do any maintenance for 20 years? Think roof repairs, outside decorating and window maintenance, gutter cleaning and repairs, pointing or care of rendering , any number of jobs that the fabric of the building requires.

The flat you're looking at might be done up nicely but when you buy a flat you're inextricably linked to all the other properties and their attitude towards maintenance and formalities.

Properties with an absentee freeholder are a nightmare , even at auction they rarely sell
Nobody wants to touch them , cash ready developers cannot sell them forwards as mortgage company's will not be interested in lending on them
However cheap it isn't a bargain
Avoid this one OP , sorry

@BigGreen

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.

I literally work on this area—you’re talking a load of guff. People should be very careful buying any property, and if buying a leasehold thoroughly research their lease, management company, etc. But a lot of London live in flats, a high proportion of first and even second purchases, should people who only need one bedroom just rent for life or live under a rock? The vast majority of leasehold flats are perfectly fine. Many leases for sale are long and will never require extension.

I would also walk away from this flat. Do you have the last known name of the freeholder/management company? My Spidey senses are tingling!

I looked a flat like this years ago.

I pipped to the post by the first viewer who upped their offer.

The issue you have is you have left everything to your solicitor. With a leasehold property you don't have that luxury even if the freeholder/management company exists. You need to investigate everything you can yourself.

So you need to get a full survey not a mortgage valuation. Mortgage valuations are for the mortgage lender not you. (The only other survey you should consider is a home buyers report but that is only if you can't get access to the loft space. )

The survey would then give you an idea of the life of the roof and what other repairs are needed. Depending on the surveyor they may not be able to tell you anything about the electrics and/or gas.

You can actually get buildings insurance for a single flat but you aren't advised to. Instead what tends to happen when there is no freeholder is that the flat holders in the building agree together who they are going to pay and split it between them. If there is a freeholder this is all they do but they add an additional admin charge on for doing this for you.

So why is there no building insurance on the flat? I suspect it is because the vendor knows nothing about property.

PPs have told you what to do to sort out the freehold. However your vendor should tell you the term of your lease and show/give you a photocopy of it. The flat I looked at had an original lease of 999 years and there was something like 910 years remaining. This is why the freeholder - who I googled and found actually owned other properties in the area - had disappeared.

I was managing a property with an absentee freeholder. It was OK, and indeed properties in the block were sold. The solution in that case was to involve right to manage and to employ a management company directly. 7 years ground rent was collected by the agent and held in a separate account, this being the maximum that could be claimed if the freeholder ever showed up.

In this case the freeholder was almost certainly a shell company owned by the developer. However they had lost the records/wound up that company. The holding company confirmed they would not object to RtM. Leases were long so it was not worth trying to buy the freehold.

It took ages and involved residents devoting a fair amount of time and some specialist solicitors. Worth doing in large block, spurred on by the sheer uselessness of original freeholder appointed management company, and a leaking roof.

In your case..... avoid.

Op your solicitor is doing their job, protecting you.
I'd tell them to put it back to the sellers solicitor and get them to sort it out, and buy the freehold if necessary.
Meanwhile you keep saving and look elsewhere.

We had a flat which was intended to be a crossover lease. Top flat owned the downstairs freehold and vice versa.
Except the leases hadn't actually been registered properly and remained with the builders. The one we eventually bought had been changed hands once before. It took 6 months for the legal stuff to get sorted before we signed the deal.

@Welcometomyhouse

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

Don't be depressed.

When I walked away from my terrible leasehold property, I looked at it through the lens of having saved myself a hell of a lot of money and stress. I'd done myself a favour.

There will be another property. There always is. This doesn't mean you'll be renting forever. You might have to wait a bit longer, but you will find something else, and when you do, you'll thank your lucky stars that you held out and didn't end up in a huge tangle of legal and financial knots that this current property will almost certainly tie you in.

Your first property should bring you joy and be a haven to come home to. This property is only going to bring you grief. Chalk it up to experience, pull out now before you spend any more money on solicitor's fees, and use the experience you've gained from this aborted purchase to ensure you find the right one next time.

I have been where you are and I know how it feels. But ultimately you're better off moving on, and I think deep down you do know this. In a few months' time when you're sitting in your lovely hassle free new property, this will all just be a distant memory rather than the every day nightmare you would be living if you bought this flat. If I were you, I'd pull out today - ask your solicitor to stop working immediately, as every search/email/phone call she's doing is costing you money - and get back on rightmove. Don't waste any more time and energy on this place. It's not worth it.

Thing is it’s cheap now but this could be very expensive down the line

I’d walk away.

Aw, I'm sorry @Welcometomyhouse. Genuinely.

Unlike a lot of MN, I live in a leasehold flat right now and it's been great - our freeholder is quite hands-off, our ground rent is low, and our service charges are reasonable. Maintenance can be a bit slow, but it's done to a good standard, and affordable. Everyone who lives here knows each other and we all get a say.

But we're in the middle of selling, and it's been a complete pain, because leaseholds are getting harder... thankfully we're not affected by the cladding issues, but could be by the new fire safety regulations that are in draft right now, and everyone is more cautious around leaseholds anyway...

If it was just the management committee that's disappeared, that'd be one thing - and I'd still be advising to run for it, because you'd have no power to do anything yourself, and no legal entity to do it for you.

But no freeholder too? Someone owns the freehold. If the company is gone, it'll revert to the Crown, I believe.

There are leasehold reforms planned, but they've been very slow moving, and there's no guarantee that they'll pass. If they do, it seems very unlikely that they'd apply to existing leaseholds, so it wouldn't help your situation (or effect mine). It may just mean that there's an even smaller market for people willing to consider an "old-style" leasehold, if it ever happens.

Your post suggests this is the only affordable option right now? If that's the case, I think it's now clear why, sadly. And it seems that the vendor's solicitor is aware that they won't be able to provide any of the required information, so is offering what they do have on a "take it or leave it" basis, in the hope that someone will take it...

If you have really deep pockets, you could potentially research if the freehold has gone to the Crown, and if so, what the costs would be to take it to Tribunal and get a cost for owning the leasehold yourself - but you'd be looking at a lot of money. There was an article in a finance column last week which advised someone who did have a freeholder but wanted to buy the freehold to prepare to spend about £32k on the freehold, plus about £8k on costs. It will be dependent on area, and length of time left on the lease, but it's not cheap... and when you go under 80 years left on the lease, 85 for some banks, it's not mortgageable.

Is moving further out an option, for cheaper housing?

I do appreciate the heartache, honestly. It's soul-destroying getting so far down the line for it to fall apart outside of your control. Our buyer is currently struggling with their mortgage... I'm so sad that it's all falling apart, I was mentally living in the house we were buying, even though I tried not to. It's normal, and it will pass, and there will be other flats (that are much safer investments for you!)

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.

Although just on this - does Companies House show them as being behind on filing? If they haven't filed since 1989, they'd have been struck off, I think. If there's no warnings about late/non filing, then someone is doing the annual returns for HMRC, so there's still someone in control of the company, even if they're not collecting on the ground rent/service charge right now...

I'd also be looking through the lease to see when they can change the ground rent. It's standard for it to be reviewed in line with the retail index every 10 years, so if they reappeared, it could be a lot higher than what the current person was told when they bought...

@RandomLondoner

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?

Solicitor here and would also never touch a leasehold. Too many things can go wrong.

Sorry, I wish I was 'talking guff' but I am not. Check out these stories for a start. It doesn't matter if you are one of the unlucky ones if the costs are personally ruinous. Btw lease extensions are not always regulated e.g. for shared ownership, they are completely discretionary.

Update -

Still no response from the other side and my solicitor will not go to my lender until they come back. She wants to see if there is any more information, although I'm pretty sure if there was they would have sent it over in the beginning. I spoke to the EA yesterday (I know they are acting on behalf of the vendor) to see if they could give them a push. The EA's mortgage advisor rang me this morning to have a chat and explained that she'd recently got someone a mortgage in a flat on the same street and there were no issues. She mentioned something about there being a bank account with funds in it for any repairs etc. I questioned how that would be possible if no one has paid any service charges in the last 20 years, where is the money coming from? She said she was on her way to the office and will see if there is any information that she can send over to me...

I've also not heard from the downstairs neighbour. I was hoping she'd give me a call but perhaps she thinks I'm just some weirdo! It is all very strange and nobody seems to have a clue who this management company is or how to get in touch with them... this is also the first time that I've heard anything about a bank account.

Maybe the flat on the same street that was mortgaged without any issues had a non-absentee freeholder.

I am furious on your behalf you are being treated like an idiot.

There will be other flats. Even if you have to stay in rented for a little bit longer I think it will be worth it.

I know @3GreenPullups. It's beyond ridiculous. My mum is really angry on my behalf and has said she can't believe I've had to do all this running around (even having to go and speak with the neighbours) because nobody can get their act together and get the information that we need to progress.

I've also seen first hand how callous estate agents can be! My solicitor believes they knew about this all along and just brushed it under the carpet, hoping because I was a young first time buyer I wouldn't notice or query anything. I agree it's lucky that I have a fantastic solicitor, she really is brilliant and I honestly can't fault her. Just so so disappointed. I know it's only been 9 weeks but to get to this point and be told it might not be possible is absolutely heartbreaking. What should have been a straightforward purchase has turned into a nightmare.

Seriously. Just walk away.
You're just building up a larger bill from your solicitor right now. And for what? This would be a stupid purchase to make.

Walk away. Call off your solicitor before you get billed for any more work.

I think it's also worth bearing in mind that, even if you were to go ahead with the purchase, you might have difficulty selling the flat in future, as other people might be very wary of taking this on

The EA's mortgage advisor rang me this morning to have a chat and explained that she'd recently got someone a mortgage in a flat on the same street and there were no issues. She mentioned something about there being a bank account with funds in it for any repairs etc. I questioned how that would be possible if no one has paid any service charges in the last 20 years, where is the money coming from?

You said that the other properties were all freehold? I would guess the set up is that the other flats own a share of the freehold of the building and have their own management company/sink fund.

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.

As PPs have said, they will have had to provide annual returns/accounts to Companies House that are available to the public online. If they haven't, they will have been struck off.

If you put the name of the company in the search bar here, you will be able to see on the "Overview" page the company status. ie active, dormant, dissolved (I have put in Ocado as an example so you can see an overview):

find-and-update.company-information.service.gov.uk/company/03875000

If you click on the "Filing History" Tab, you will be able to see the last time they filed anything. You will also be able to find details of directors etc on the "People" tab. The director's correspondence address might still be valid, even if the company is no longer active or, if they have other directorships, you might be able to do a search and find an up to date contact on the site.