Share of freehold and length of lease

LouiseK_2

We are FTBs and are buying a flat with a share of freehold, but we are v. confused about what we are actually buying so some advice would be appreciated.

The current lease on the property runs from 99 years from 1976 i.e. 69 years to run. Our solicitor has told us this is fine and perfectly normal, but we are concerned that it is too short and I understood that it can be difficult to get a mortgage on such a short lease (although our mortgage provider seems happy enough, but what if we want to sell up in a couple of years?). We were thinking of insisting that this is extended to 999 years, say, prior to exchange. Would this be sensible or are we just being silly about the term of the lease and worrying unnecessarily?

Also, there does not appear to be any documentation which actually states we have 1 out of the 2 shares (there's only 2 flats) of the freehold. I assume there should be. We were also expecting to own a share in a management company, but none seems to exist. Is this normal?

Also, we feel our solicitor has not been very helpful. All she's sent to us is a covering letter with a whole load of legal documentation which we don't understand and she has said she will not be providing a written report (although we did ask prior to appointment whether a report would be provided and the answer was yes). Despite numerous phone calls, we just don't feel entirely happy with what we supposedly meant to be buying. Are we being over-cautious and FTB-inexperience has kicked in? Or is this normal?

Many thanks.

EdInvestor

Have you seen the lease yet? Most of the details should be covered there, including the name of the freeholder.

The length of the lease is not a problem as you've found now, but I would want at least an indication of how much it will cost to extend it.Ask the estate agent/solicitor/other agents in the town for an idea about this.You do have the right to extend the lease after 2 years and it's normally not a problem to increase the mortgage to pay for it. A length of 125 years is quite adequate, you will possibly be offered 199 years, but may find this is rather expensive.

What is the legal documentation you have been sent about?

LouiseK_2

Thanks for your response.

We have been sent a copy of the lease and the land registry title. The title has the vendors as owning the freehold, but there are various other names who appear to own the lease. However, our solicitor has said that the current owners own the lease as well regardless of what it actually says on the document and this simply hasn't been updated.

If we were to own the freehold, then I assume we can grant ourselves as long a lease as we would like (I'm not sure why the current owners haven't done this). Would it be unreasonable to ask the vendors to do this? We are nervous that if there are any problems about extending the lease, then these are uncovered now prior to us buying, rather than us buying, discovering there is a problem and being unable to extend the lease.

RiskAdverse100

I cannot believe that your solicitor has said that she is not going to provide a written report.

How on earth does she expect you to understand fairly complicated issues such as lease extensions and shares of freehold without one?

She is very clearly not giving you the professional service that you are paying her for. Insist on a full written report and make it clear that you will complain to the senior partner if you do not get one.

She must also answer the particular queries that you have raised in your post.

RiskAdverse100

westernpromise

LouiseK wrote:

If we were to own the freehold, then I assume we can grant ourselves as long a lease as we would like (I'm not sure why the current owners haven't done this).

Probably because there's no point to doing so - but there is a cost, if you did.

There's no point because there are 2 freeholders, the owners of the flat you're buying and the owners of the other flat in the conversion. If one wants a lease extension, the other obviously isn't going to oppose it, otherwise they'll not get one themselves either if they ever wanted the same. So getting the extension for free is a formality.

The cost is that whenever you change ownership terms, various people have to be informed - Land Registry, mortgage lender (because it affects the charge they have over the flat), etc - and they will all charge you money for doing it.

So why spend money giving themselves a longer lease when they own the freehold anyway?

What should happen is that the freehold is owned by a company in which all lessees have a share (usually equal shares in a case like yours). When the freehold is sold, what is actually sold is your vendors' stake in that company. As you've spotted, you don't own half the freehold per se, you own half the company that owns the freehold. You are right to want that absolutely crystal clear.

Incidentally, if you want a quote for buildings insurance in a house like yours, I found Adrian Flux to be very good. A lot of companies won't do buildings insurance if the occupancy is split. When my OH bought out the freehold with her upstairs neighbour, and took over the management, they were very efficient and competitive.

LouiseK_2

Thanks RiskAdverse100 and western promise.

What are other people's experiences in receiving a report from the solicitor? Is it normal to receive one?

We really can't make head or tail of the title dead and lease that we've been sent. She also sent us a copy of the vendor's water bill (presumably there's a reason behind this but no idea what). Whenever we talk with the solicitor, she assures us everything is fine but I'd feel so much more comfortable if I had something in writing so I don't mis-interprete (and also if things go wrong I have evidence of what we've been advised). We've therefore decided to e-mail our solicitor questions that we want answered e.g. will we own a share of freehold, how does it work, etc.

The questions about the management company will now be added to my list.

missk_ensington

I woudln;t touch a lease under 100 years. They are obliged to extend yur lease, but it isn;t free! The way I see it you aren't buying a flat you're renting it, only paying your rent up front in the form of £100,000 or something like that for 70 years.

You could be charged a further £100,000 for another 99 year lease. You'll lose a couple of grand when you sell it in a couple of years, unless you get the lease extended which will cost you more than you're going to make from selling the house.

Whichever way you look at it, you lose money from this time of lease. A

missk_ensington

I wouldn't touch a lease under 100 years. They are obliged to extend your lease, but it isn't free! The way I see it you aren't buying a flat you're renting it, only paying your rent up front in the form of £100,000 or something like that for 70 years.

You could be charged a further £100,000 for another 99 year lease, you culd be charged £5,000 to extend it another 10 years. You'll lose a couple of grand when you sell it in a couple of years, unless you get the lease extended which will cost you more than you're going to make from selling the house.

Whichever way you look at it, you lose money from this time of lease. At best you just won't make any money from it, even if house prices rise.

If you're the Freeholder it would be different although I'm not sure how it works when you share a Freehold. Unless I stand corrected each 'Freeholder' will have a ratio'd share of the Freehold dependent on the size/value of their flat. Basically you ave 1 vote in maybe 6 (or however many flats there are).

westernpromise

missk_ensington wrote:

I woudln;t touch a lease under 100 years. They are obliged to extend yur lease, but it isn;t free!

What's the significance of 100 years exactly? For flats with more than 80 years left on the lease, the procedure for acquiring the freehold is plain vanilla, and the valuation is very straightforward. It's just the present value of the ground rent the freeholder can expect, discounted to reflect the fact that £1 the freeholder will receive in 80 years' time is worth basically nothing today.

When my OH bought her freehold at 80 years, it cost £1,500, split between her and the guy upstairs. That was off a ground rent of £50 a year. They now co-own the freehold, so they could extend their leases anytime, but it would cost cash to do so. I guess this will be done in 78 years' time, or whenever both flats are simultaneously sold and the land registry details are being changed anyway.

It's when you get below 80 years that it all gets a bit murky - marriage value and so forth. If, as in Louise's case, you are your own freeholder, then it doesn't matter anyway - she's going to be her own freeholder, so both lessor and lessee.

I suppose in theory the other lessee in her house, who owns the other half of the company that owns the freehold, could obstruct her from extending the lease. I can't think why they would, because she could do it back to them and they would not gain from doing so.

missk_ensington

westernpromise wrote:

It's when you get below 80 years that it all gets a bit murky - marriage value and so forth. If, as in Louise's case, you are your own freeholder, then it doesn't matter anyway - she's going to be her own freeholder, so both lessor and lessee.

There could be several people who co-own the Freehold. In my Mum's residence there are about 8 people all with different share proportions. If there are any disputes at the property (which there invariably are the most common being about car parking and maintenance) then out of spite someone could charge a fortune for it.

For example, at my Mums there's John a swine who has a 31% share, then there's Hazel the old woman been there 40 years and adores John, she has 20% share then the rest have 12-14% each or something like that. It only takes John to get Hazel on side to outvote everyone. So basically even though everyone co-own the Freehold, its neither use nor ornament cos every vote is going to be led by their 51%