Freehold and leasehold - advice please

[dylexicdementor11]

Hello,
DH and I are finally looking to buy our first property and we’ve fallen in love with a freehold apartment.

There are three leasehold apartments in the building with 90 years remaining on their leases. if we bought the apartment we’d own the freehold to all of the apartments in the building.
The freehold is currently owned by a company that has not maintained the building very well.

I feel out of my depth and would really appreciate some advice. I’m from an EU country that does not have leaseholds so this is all new to me.
Is there anything in particular we should be asking at this stage? What would happen to the leaseholds if the owners do not extend their leases? Any tips would be greatly appreciated!
Thanks.

Leasehold can be an expensive nightmare, I'd suggest you join the National Leasehold campaign group on FB. You could ask the same question there, they have members that are experienced in the legal side of leasehold.

Thank you! I will.

You probably need to talk to a solicitor about this as it's seems an unusual situation.

I'm currently buying a leasehold house (steered clear of them before) but it's actually not that bad. Obviously flats/apartments are a bit different.

Are you buying an apartment and the freehold, or just the freehold?

If the building hasn't been maintained well it could cost you a fortune to bring it up to where it needs to be. Check, check and check again exactly what's involved and what you are responsible for, and what your lessees (the people who have leasehold flats and pay the freehold owner ground rent, and possibly maintenance fees) are responsible for.

We would buy one of 4 apartments and the freehold for the entire building.

Thank you! Do you know if we have a right to look at the contracts between freeholder and leases before we make an offer?

Buying the entire freehold sounds like an expensive nightmare if the building has been badly maintained!

Being the freeholder is the best position to be in as it means that you own the freehold of the whole building. It does however mean that you are responsible for its upkeep and have to charge the other leaseholders for their share.

Leaseholders are required to contribute to the costs of joint maintenance (I.e external repairs to the building and garden and any other communal areas.

It is more common for the freehold to be owned by a company and each leaseholder to have a share in the company. Decisions are then made jointly by the shareholders who represent each flat.

Your solicitor will be able to give you much more information on this specific to the circumstances of your particular flat because each one can be slightly different.

I think you need a really good solicitor who specialises in this type of thing to give you good advice.

So presumably the freeholder also owns the flat that's for sale? Would the other lease holders be interested in buying a share of the freehold?

This is not a bad position. The other leaseholders (and you) will be liable for the maintenance of the building according to a percentage which will be in the lease.

Usually you would employ a managing agent to organise the maintenance and ongoing compliance etc.

The other point to consider is that if anyone wants to extend their lease, you get the money.

But yes, you can have the other leaseholders buy a share of the freehold.

Thank you. That’s really helpful. And thanks everyone for helpful comments. We’re viewing the apartment next week with a builder to get a better sense of what it might cost to make it livable for us. I’ll work on finding a good solicitor to check the contracts.

We will definitely follow our heads and not our hearts. I don’t have the time or money to deal with a money pit.

The apartment has been on the market for a few years - the owners are investors and they recently lowered the price quite significantly. It all looks a little too good to be true.

Yes, the freeholder owns the apartment that’s for sale. I’m not sure what the leaseholders would like to do.
would it make sense to ask them at this stage?

What would happen if we didn’t ask them to buy a share in the freehold and we refused to renew their leases? Would that be legal? If so, it seems like a very dangerous position to be in as a leaseholder.

Please note, we would not want to do something unethical like that. - I’m just curious as I can’t see the benefits of ever buying a leasehold.

AFAIK you have to extend the lease - it would be illegal not to. Subject to payment of course. Potential problems - the lease holders not wanting to buy a share of the freehold. You having to collect money from the lease holders to undertake work. That could well be why the property hasn't been maintained well.

You're not just buying a home in this instance, you're buying a form of property business. You need to consider this carefully with expert advice. I'd start with a really good solicitor that regularly works with freehold owners with this type of arrangement. You need to understand the liabilities and obligations, along with any potential income. And the alternatives.

Ah, okay, thanks. That’s really interesting. Do you I know what would happen if we extend the lease but the leaseholders can’t pay?

Thank you! Very good advice.

Yes quite often one apartment will own the freehold and the fabric, public spaces, roof etc. of the building. You need to check the deeds to see if the leaseholders are liable for a repairing covenant otherwise costs may come down to you...

Do you I know what would happen if we extend the lease but the leaseholders can’t pay?

You only extend it if they want you to and pay for it! Otherwise keep it and in 90 years you own their home.

The deeds should be available as public documents registered with Land Registry. Your solicitor will be able to obtain a copy of the other apartments leases to check all clauses.

We did exactly this about 10 years ago (we have since moved and sold the flat and the freehold separately).

So you are basically paying 2 separately items and you need to remember that. As a leaseholder of the flat you all still held to all the lease clauses etc...

Then you put your freeholder hat on and you will be in charge of the maintenance of the building (including building insurance, fire safety, asbestos surveys etc.....) The lease should state how service charges and ground rents are paid from the other leaseholders (including yourself! You don't get out of paying service charges by being the freeholder). Of course it has its advantages that you can control the spending to some degree as you wont have a managing agent taking a massive cut, unless you choose to employ one. You need to keep on top of maintenance but also need to know that if any work is above £250 per flat you will need to issue a section 20 to all leaseholders (including yourself) and get a certain amount of quotes (I think it was 3) and that the other leaseholders have the right to get quotes as well.

With those lease lengths you would need to hold the freehold for a while to get a decent return on the cost of purchase as marriage value doesn't hit till less than 80 years, and with the changes the tories wanted to bring in, and who knows what a new government would bring in you may find it not worthwhile you taking on all the work of the freehold.

If I was a fellow leaseholder I would be interested in buying in and making all leases 999 years and then having all the leaseholders as directors of the company to carry on the maintenance etc....

All said, it can be a lot of work, if big work is required due to the lack of maintenance you may piss off all your neighbours not long after you have moved in and you still have to live alongside them for a good number of years. Go in to it with your eyes open.

You need to do a lot more research on this as by the sounds of it you haven't got a clue (I'm not saying that in a rude way). You cannot demand they extend their lease and have to pay you. They will approach you and say they want a lease extension and they want to go down the formal/informal route. Informal route you can name the terms within reason. Formal route you have to adhere to very strict timelines and a calculation for the lease extension cost. The formal route adds 90 years on to their lease and ground rent reduced to zero. Informal route you can add on whatever extension length you want and raise the ground rent to a reasonable amount.

The OPs flat may not have a lease. Sometimes when houses were divided into flats in the past, the owner would stay in one of the apartments and so retain the freehold.
Each situation is different though and thorough investigation must be done.

They would struggle to get a mortgage on that set up if they need one so if it has that set up it may be a non starter anyway if that was the case.