Buying through a holding company

harry_singh

Hi

Greetings to everyone!

I am a FTB and read with great interest the postings on this forum.

I have a query. I have recently seen a two bed flat. The flat is in a fantastic location with great school nearby. There are seven flats in the block. The freehold title is owned by a holding company.The owners of the flat become 1/7th directors of the company. The lease on each flat runs for 99 years and has about 78 years still to go.

Does anyone out there have experience of buying a property like this? What are the pitfalls?

Would appreciate your replies!

djm1972

Hi Harry,

I can't offer any specific advice as I have never purchased a flat under this arrangement; but I do know that is quite common and any conveyancing solicitor will be familiar with the setup and be able to advise you accordingly.

The big plus I would have thought is that by owning the freehold the length of the lease becomes academic as you might be able to extend the lease simply by coming to an agreement with the other directors (but don't quote me on that!)

Minuses I can think of are there being a bit more of an administrative overhead to owning your flat; in terms of being a director and making sure any paperwork and annual administration is carried out, however the majority of this might be carried out by a specialist holding company accountant who effectively runs the management company on behalf of you and your fellow directors.

Before buying you should also find out exactly what the processes of budgeting for and managing the block are; for example cleaning, repairs and decoration.

harry_singh

Thanks djm1972!

Charges:

£53 for building insurance, maintenance, cleaning of common areas and windows, etc.

plus

£24 for a local leisure complex which has a swimming pool, tennis court, badminton court and function hall. (Membership compulsory).

The admin work is carried out by another director (not sure if this is on a rolling basis). Accounts are audited by independent auditors. The sinking fund has a good surplus - I am told!

Richard_Webster

The lease will still need to be extended sooner or later. Usually in this kind of situation the logic is that the company should extend the lease of anyone who asks for it for no more than the legal costs of doing it - but they don't have to and occasionally they decide not to - so it is worth making some approach to those who seem to be "running" the company to make sure that there will be no problem in this respect in the future.

As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.

courtjester

These types of holding arrangement will vary - ours is pretty much an informal set up with the accounting duties and paperwork done by one of the directors (me at present), rather than an outside company. Although as a director you assume joint responsibility for amongst other things ensuring company returns are submitted, providing you have proper financial details and the bank account is kept on top of, there is no real issue to the liability aspects.

The charges you refer to seem pretty reasonable - are these monthly or quarterly? Is there a sinking fund (say for redecorating the outside of the building every so many years). If so, you should take over the 1/7th share of what is in that fund from the previous leaseholder.

Vickicb

I owned a flat 9 or 10 years ago where the residents bought the freehold and we all became 1/12 directors of the company. It worked fine and each year someone agreed to take on the admin for a nominal fee (I think we paid him £220, ie £20 per year from each of the other 11 flats). Your fees look very minimal so check the sinking fund actually does have money in it in case the roof caves in.