Yet Another Freehold Flat Question!

westv

Richard_Webster wrote: »

Also frankly I think you will find that the freehold of each flat will include that part of the structure that relates to that flat and the lease will only be concerned about stairwells and gardens etc.

Apparently, the freehold for the flats is only for the internal parts of each property. The freehold for all the common parts (stairwells, grounds, roof, external walls etc is owned by the management company which is (I believe) formed of all the residents in the blocks. Each resident has a lease covering these common parts together with the freehold of their own flat.
I'm waiting for my solicitor to confirm this is correct. If it is, I'm even more confused as to why it was decided to do it this way rather than just normal leasehold flats. I suppose at the time it gave all the benefits of a leasehold flat but with certainty of ownership for ever.

westv

It's now been 7 weeks since my offer and just over 6 weeks since the solicitor said they would check things over so I could decide whether to proceed or not - that question still doesn't have a definite answer.
As of today, they are waiting for answers to some standard questions relating to the service charge (3 weeks so far). I've heard from several people that the vendor's solicitors are extremely slow so the delay does not surprise me.

Richard_Webster

Apparently, the freehold for the flats is only for the internal parts of each property. The freehold for all the common parts (stairwells, grounds, roof, external walls etc is owned by the management company which is (I believe) formed of all the residents in the blocks. Each resident has a lease covering these common parts together with the freehold of their own flat.

If this is the case then in theory you could enforce against the management company under the terms of its lease but, as I have said, whilst this might work in practice, it doesn't fit in with what lenders will accept, so you need to accept that for all practical purposes the flat is unmortgageable and you have to value it accordingly.

Also, as I have said in another thread about a flat over a restaurant - don't assume that the 25-30% discount for freehold flats is some immutable law. When it is a seller's market that ratio could decrease and you would get relatively more for the flat and in a slumped buyer's market it could increase and you would get less.

westv

Richard_Webster wrote: »

If this is the case then in theory you could enforce against the management company under the terms of its lease but, as I have said, whilst this might work in practice, it doesn't fit in with what lenders will accept, so you need to accept that for all practical purposes the flat is unmortgageable and you have to value it accordingly.

Also, as I have said in another thread about a flat over a restaurant - don't assume that the 25-30% discount for freehold flats is some immutable law. When it is a seller's market that ratio could decrease and you would get relatively more for the flat and in a slumped buyer's market it could increase and you would get less.

Yes, I appreciate that most lenders work to tick boxes and it causes problems if a property doesn't fit the right tick boxes.
Well I guess that, if one is going to buy an "awkward" property, now is as good a time as any. Things aren't exactly booming! I'll see what the solicitor says on their final summing up.

westv

Just as a matter of interest, when it comes to the type of "freehold" flats that are mortgageable by one of the few lenders available, which party has the most influence with the mortgage company's underwriters as to whether the title is good and marketable? The surveyor, the conveyancing solicitor or the mortgage broker (if used). Or perhaps none of them?
As explained previously, I know the property I'm interested in appears unlikely to fit into the category of mortgageable properties but I'm just curious.

Richard_Webster

Just as a matter of interest, when it comes to the type of "freehold" flats that are mortgageable by one of the few lenders available, which party has the most influence with the mortgage company's underwriters as to whether the title is good and marketable? The surveyor, the conveyancing solicitor or the mortgage broker (if used). Or perhaps none of them?

The broker will have no influence at all, if he understands what a freehold flat is!

Essentially it will be up to the solicitor to tell the lender whether the title is good and marketable and he will make that decision by looking at the lender's criteria which seems (RBS & Nat West) to be about having an enforceable scheme of mutual covenants.

Personally I can't see how any such scheme can really be enforceable because if you have a number of flats and everybody has to sign whenever any flat changes hands then some awkward whatsit won't be around or will refuse to sign for some random reason. That would put me off giving an unqualified certificate and I would qualify it and tell the lender that the lower the number of flats involved and therefore the number of third party whose signatures would be needed, the lower the relative risk, and I would also say that the lender might consider the condition of the property as relevant.

So I would push it back to the lender and and that point it might consult its surveyor on the condition in making its risk assessment. Whatever happened I would make it clear that my certificate was not unqualified and the buyer would have to accept that could mean the lender would not proceed.

In most cases they even start having a scheme of mutually enforceable covnenats. In a case such as yours where possibly the scheme of mutual covenants isn't really needed I would still be very careful and would explain the scheme in detail to the lender and make it clear that it was up to he lender to decide whether or not to proceed. There is a big danger for solicitors of being accused later of not explaining things so it would be necessary to give a lot of detail and in doing that frankly I think the lender would just give up and say "No". Underwriters are highly unlikely really to understand all this and their attitude would be quite unpredictable.

westv

Thanks Richard for that reply and the other useful posts.

westv

Got some info from the solicitor.
Received a copy of the lease, the Conveyance and the last three years management accounts.
The lease mentions that the management company is resposible for insurance, the roof, communal areas and the decoration of the exterior (woodwork and pipework needs to be repainted every three years). It also mentions that none of the residents must do anything that would increase the insurance premium being paid. It also mentions that, if the service charge isn't paid then the lessee can be excluded from the common parts - or words to that effect I think.
The Conveyance contains the rights of support and access for repairs.
From that very brief description, would that cover the requirements of the few lenders that might be willing to lend on the flat?
Would the above be enough for my own piece of mind purely as a cash purchaser? Are the rights of support enforceable when they are in the Conveyance and not written into the lease?
The solicitor hasn't mentioned that there's any problems.

Richard_Webster

From that very brief description, would that cover the requirements of the few lenders that might be willing to lend on the flat?

It doesn't because the requirements contemplate a different set up -so it would have to be explained on a one-off basis each time and you don't know how a future buyer's solicitor would explain it.

In some ways it is better than the scheme of mutual enforceable covenants, but as I have already explained, lenders do not have qualified staff in the right places to understand the distinctions, so their attitude (it is only really RBS/Nat West anyway) is totally unpredictable.

westv

I think I finally have all the pieces to the puzzle.

Freehold flat - as already mentioned
A lease for the common parts
Buildings insurance covers the whole structure not just common parts (also stipulated in the lease)
The lease stipulates that the management company (run by tenants) is responsible for repair of common parts including roof, loft space and all exterior pipework. They are also responsible for decorating the exterior of the flats and separate garages.
Lease contains a right of access to the flats for repairs to pipework etc.
Lease and Conveyance contain a stipulation that the flat owners must do nothing that might cause the buildings insurance premium to increase or extra premium to be payable.

From my own point of view I think I am now happy with how this set up operates. From what I have been able to gather the block is very well maintained and run and I see no reason why this should not continue seeing as everything appears to be legally covered as far as it can be.
Of course, I appreciate that the number of lenders who may be willing to lend on this property is very limited and that will reduce the market when it comes to sell. On the other hand, I believe that the flats have attracted a number of older people so I doubt they'll be any loud parties - unless they are deaf! It is also unlikely to attract any BTL investors so is more likely to have a more stable occupancy than perhaps a pure leasehold block might have.