Freehold Flats

AndrewSmith

wavefinder wrote:

we have the freehold of the flat we live in.a block of two flats.the other being leasehold.whoever lives in the leasehold one is responsible for a share of the maintenance costs inc repairs,inc new roof etc. i cannot see any problem in being a freeholder,in fact i would say its better if you have the freehold! you have a bit of control. i think there is a bit of unnecesary scaremongering here.ie. difficult to sell on,difficult to get a mortgage etc. a load of codswallop!
i mean have the laws on freehold changed in the last 5 minutes,or am i missing something? :rolleyes:

That's your opinion and you are entitled to it of course, however if you actually pick up the phone and ask the main highstreet lenders in they will lend on a freehold flat, the majority would likely say no.

When I give advice on this forum it's not just an ill-informed spur of the moment comment, it is based on many years experience in the field in which I am qualified. I place on average 10 mortgages a week so do come across freehold flats on a regular basis, every time there is the same limitations on who will lend on it. Before I posted my response I checked using an Industry sourcing system on the lenders likely to accept a Freehold Flat. The ones listed above said yes definately with another half dozen or so saying the decision would be subject to the individual property.

It depends on the situation as a whole, of course, however I speak based on my own experience of freehold flats and the number of mortgages I have arranged on them in the last 12 years.

Why on earth would I or anyone else want to 'scaremonger'? What could possibly be the point?


@ Edinvestor

Excellent advice. Having a new lease drawn up is one of the most common ways the solicitors suggest proceeding in such a case.

I stress again though that it does depend on the individual property and, as Edinvestor rightly says, the conditions of the attached leaseholder.

One of the main reasons lenders do not like Freehold Flats is the ambiguity it can cause if, for example, they have to reposess one flat in the main building. This is straight from a lender I have just put the phone down to.

Andy

Doozergirl

Andy, I'm a bit confused! There was a bit of conversationon on my thread the other day and poor old JennyW asked the same question and didn't get an answer then either!

With the law shifting to favour Leaseholders and efectively encouraging them to buy the Freehold where possible, how does it work? Is a freehold flat the same as a flat where the leaseholders form a company which buys the freehold and they own shares in the company or is that how leaseholders get around the mortgage problem?

RiskAdverse100

You do have to be very careful when referring to a 'freehold flat'.

Legally speaking, if you buy a house which has been divided into two separate dwellings and, for example, the lower dwelling has already been sold off on a long lease to someone else, you are not buying a freehold flat.

You are in fact buying a freehold house subject to a long lease of the lower part.

Freehold flats do exist although they are very rare.

If you had a freehold property which you converted into two separate dwellings it would be possible to sell the top half of the building as a freehold unit without a lease being granted.

This would result in two freehold flats being created.

So what is the problem with a 'real' freehold flat?

If a lease is granted of a flat then it should contain a number of rights. One of these will be a right of support and protection from the rest of the building. If you live on the top floor you want the owners of the flats below you to be prevented from, for example, removing structural walls to avoid the possibility of the building falling down and the value of your flat dropping to zero.

The landlord will ensure that you have rights of support and protection by including in the leases of the flats below you covenants on the part of the flatowners not to carry out structural alterations etc without consent.

If you create two 'real' freehold flats out of one freehold building and don't do it properly then there is nothing in writing to prevent each flatowner from carrying out dangerous structural alterations.

If it is all done properly then the two flatowners will enter into a Deed of Mutual Covenants and, surprise surprise, this will contain all the covenants that you would expect to see in a lease preventing alterations from being carried out that could have an adverse effect on the structure of the building etc.

Lenders often do not like lending on freehold properties where part of the building has been sold off on a long lease already because, if they had to ever take possession proceedings, they would end up not simply as the possessors of a flat, they would become the landlord and be subject to all sorts of obligations and liabilities that they would want to avoid.

In some cases lenders will insist that the seller of the property grants a lease of the flat to the buyer so that this only is mortgaged. The seller would agree in the sale contract to separately transfer the freehold for a nominal sum.

If you ask a knowledgeable solicitor and a lender what a freehold flat is they will come up with two different explanations!

RiskAdverse100

AndrewSmith

Hi Doozer girl.

No, they are two different things.

What you are describing is where the owners of a block of flats together form a management company to purchase the freehold to the building. The individual owners of the flats still occupy on a leashold basis, with the freeholder being the management company.

A freehold flat is where the owner of the flat is not only responsible for the internal element of the property but, as an individual, is responsible for the external maintenance of his 'freehold'.

As Edinvestor and Riskaverse100 suggests, the best place to get the correct advice on the exact definition is from a solicitor, I can only comment on my own experience from dealings with Freehold Flats with regard to the mortgage side.

Hope this helps

Andy

Doozergirl

Wow. RiskAdverse 100, that answers my question exactly - and some. Thanks!

EdInvestor

You are in fact buying a freehold house subject to a long lease of the lower part.Freehold flats do exist although they are very rare.

Agreed.

In some cases lenders will insist that the seller of the property grants a lease of the flat to the buyer so that this only is mortgaged. The seller would agree in the sale contract to separately transfer the freehold for a nominal sum.

This is quite easy to organise especially if there is an existing lease (assuming it was properly drawn up) as the vendor can just use it as the basis for one on his own part of the property. Then you have two separate leasehold flats and one freehold, the latter owned by one of the leaseholders. This is extremely normal.

You would then buy the leasehold and separately the freehold (for a nominal amount).

I would consider asking them if they would do this now before the sale. You can be sure if you're getting queries, so is every other buyer. This kind of thing often happens when leasehold property is sold - demands by buyers for extensions of the years remaining on the lease is for instance very common.

You will probably find you need to do it yourself before selling later on, so you might as well try to get it done now on someone else's account.

EdInvestor

noddynoo wrote:

.Would we be able to draw up a lease once we buy it

Yes

Is it costly?

Shouldn't be, as there is already an existing lease on the other flat to copy (assuming it is an OK lease, which would need checking.)

noddynoo

the other lease has been checked by our solicitor and seems fine They have no concerns about it at all.

RiskAdverse100

The easiest solution if a new lease is required is always for the Seller to agree in the contract to grant a new lease to the Buyer on completion and to separately transfer the freehold for a nominal sum.

The obvious problem in trying to get the lease granted first is that a freeholder cannot grant a lease to himself.

If you have two freeholders then there is no problem as they can grant the lease to one of them.

However, if the sale doesn't then go ahead they are left with a leasehold interest that they didn't really need to create in only one of their names. They will also have had to pay to have the lease created and then registered at the Land Registry. They may also have had to pay for a lease plan to be prepared.

There will also be problems if there is an existing mortgage as the lenders will need to give their consent to the lease being created and will want their mortgage to be secured against this as well. More costs will arise.

If the lease is granted after completion then the same ownership issues arise along with the same consent issue if there is a mortgage.

RiskAdverse100

noddynoo

That is really helpful.So if we buy it and then come to sell we can create a lease to sell on and then sell the freehold alongside it for a bit extra?This sounds a good idea