Buying leasehold, freehold company in liquidation- risks associated?

tantrumsandtiaras

I apologise in advance for a long rambling post but I really do need help if possible and thank you in advance for reading this post.


I am due to exchange of contracts this week on a leasehold flat. But 2 weeks ago it came to my attention that the freeholding company has gone into liquidation. This is a development that is less than 10 years old. In the past the flat did not sell because one of the directors of the freeholding companies was also director in the Management company. He no longer is. I have been advised that there is nothing to really worry about and in time things will work themselves out.

I was worried about the continuation of quality of services but was advised that this has nothing to do with freeholders.

I have been told that the tenants will all be given first refusal to buy the freehold and that 50% have to agree. If that happens then the Management company owns the freehold( because apparently all tenants are shareholders in the Management company) and for the remaining properties who do not buy the freehold another Management company is set up, but that overall running and collecting of service charges for all properties will go to the original Management company set up. I have been told that there is nothing to worry about this scenario. Then if they don't reach the 50% threshold the receivers has to find someone else tobuy the freehold and again nothing interms of continuation of quality of services will be affected. Are there any risks in terms of them not being able to find someone to buy the freehold or if a percentage of people agree to buy the freehold and the rest stay as tenants. I was told it was best to buy the freehold as in future all I will have to do to renew the lease is pay solicitor fees, but if there is still over 115 years on the lease and I look to move on in 3-5 years is it worth it?

Is there anything to worry about buying the leasehold when the freeholding company is in liquidation and nothing is sorted out yet? I don't really understand leasehold very well. At first I was told it didn't matter that freeholders where in liquidation as there was a separation between them and the Management company but then it appears receivers have decided to trial a new management agent for the next three months because they think they will offer a better service. I queried this as the receivers might not have best interest of the tenants but was told that it didnt matter as the Management company collected the money and that receivers or future freeholders have no other interest than getting best service for tenants as they would not benefit from having cheaper management agents.

There is a lease document but I cant see where it says who has the right to choose the management agents (my solicitor now says they have the right and if tenants don't agree they can apply for a right to manage but this conflicts with the solicitor saying there is a separation between freeholders and the management company and that it didn't matter they where in liquidation), and if in the past a director from freeholder was on the board of Management company what is there to stop that happening again.

Also there are 8 out of 170 unsold properties owned by freeholding company that wentbust and I worry that receivers put them all on market in one go that it will drive the prices down because whole point is that these flats are sohard to come by. Estate agents keep telling me that that no one would do that because they will not get their money' worth but they are just trying to force me to buy. Also they say in any case in 2-3 years time it willall have sorted itself out, by the time I would be looking to maybe move on if I wanted.

Probably from above rambling it shows that I do not really understand things clearly but in this situation what is it that I should be worried about? I dont want to step into a situation where I might find it difficult to sell or have to drop the price.

Thank you for any advise you can give me. My Solicitor says the right things on the phone, and in person but then other issues come up and I dont know where I stand. Are you allowed to ask them to state in writing who has the right to do what, and what the potential risks are, as they seem to say there is nothing to worry about and then say I dont have to go ahead if I am worried, but then these Issues might be a problem with buying any leasehold.

Thanks

P.S if the lease document says you have to seek permission to rent the property and in the past its been allowed by freeholders who went bust, is there chance new freeholders could refuse?

propertyman

Your first mistake is that you think you are buying a freehold flat, you are not. Freehold flats are rare and have their own complications and share freehold, if you can show me one I will produce my daughter's unicorn.

You are buying a flat on long lease, and as it seems a share in a company negotiating to buy the freehold. Two different assets.

Based on your post and if you obtain a copy of the lease you will likely see that there are 3 parties to the lease
1: Freeholder
2: Man Co often "your block of flats" management co limited
3: the original leaseholder ( you are taking an assignment of the existing lease)

It is likely, and your solicitor should check, that 2 are responsible for all or virtually all the covenants under the lease for the upkeep and management of your homes, ideally leaving 1 with ground rent income and little else to do ( there are few important things like forfeiture but that's off topic).

The second mistake and it's a big one is the the existing Man Co should not buy the freehold. its job is to manage the building and its current shares and articles are likely written to reflect equality in voting and purpose. Having some shareholders also owning the freehold can lead to conflicts and "2nd class flat owners" syndrome.

It is essential that if they do proceed that it goes to a separate company owned by those that participate and that is is limited by shares not guarantee.

In principal if the leases are sound and 2 are in control and adequate running the block with an experienced agent then it is likely to go well.

Pass the note to your solicitor and if they scratch their head and act confused, find another one...

Good luck