Problem with buying a leasehold maisonette and being the only freeholder too?

Frances63

I wonder if anyone can help?

I'm considering buying a leasehold flat that also comes with the freehold.

It's a ground floor maisonette. The upper floor being rented out by it's owner to a couple.

The flat was under offer, but the previous 'would be' buyers had a problem with owning both the freehold and the leasehold. It seem that for this reason there may have been an issue with getting a mortgage.

I would be a cash buyer, so financing is not an issue, but I am worried about eventual resale if this property is unmortgagable?

Why is it a problem to be both leaseholder and freeholder at the same time? Why are lenders unwilling to lend on this?

Frances63

Anybody know? :huh:

Richard_Webster

It shouldn't be a problem with most lenders but the issue is they often don't understand it.

You will need to look up what your lender's Part 2 pf the CML Handbook says.

This is the Halifax version:

5.8 Other Freehold Arrangements(Back to contents)

5.8.1 Unless we indicate to the contrary (see part 2), we have no objection to a [B]security which comprises a building converted into not more than four flats where the borrower occupies one of those flats and the borrower[/B] or another flat owner also owns the freehold of the building and the other flats are subject to long leases.

5.8.1 Does the lender accept security which comprises a building converted into not more than four flats where the borrower occupies one of those flats and the borrower or another flat owner also owns the freehold of the building and the other flats are subject to long leases?
[Halifax Comment]:
Yes. If the valuer has not referred to the title arrangements in the valuation report, or if a physical inspection report has not been carried out, you must report the arrangements to us so that we can ensure that there are no adverse effects upon the valuation.

See in red above.

I don't think Santander and Nationwide even have the qualifications that Halifax has. Simply look up that paragraph for your lender at http://www.cml.org.uk/cml/handbookand quote it back to them.

Frances63

Thanks, I'm a cash buyer, so it's not directly an issue for me, only indirectly as regards resale at some future point. It seems not to be too big an issue as the lease has some 950 years still to run.

I imagine as freeholder I would be responsible for the building's insurance on the whole building (and not just my half).

Therefore, presumably, I would have to charge the leaseholder of the first floor maisonette something for this. I'm assuming there will be some existing arrangement.

Fire_Fox

You will be wearing two hats, it's helpful to see yourself as two entities. Freeholders are responsible for paying ALL the buildings insurance and ALL the repairs and maintenance as per the long lease, claiming the money back from the leaseholders via the service charges. So effectively you will pay your business bank account out of your private bank account.

Be aware there are strict regulations as to your rights and responsibilitie, if a freeholder doesn't ask for money in the prescribed way they can end up out of pocket. Also be aware a freeholder is liable for the insurance, repairs and maintenance even if the leaseholders do not pay so you may need a 'float'. You also need to do annual accounts and other boring tasks. Don't assume anything this is a business arrangement. Loads of advice as to the rights and responsibilities of both freeholders and leaseholders here, read as many articles as possible more than once http://www.lease-advice.org/publications/

Frances63

Thank you Fire Fox. That's helpful advice. It's a problem isn't it. On the one hand it's good that the Freeholder isn't someone else that might try to rip me off by overcharging for repairs etc., yet on the other hand it's a responsibility I don't really want to have to deal with myself. It sounds like it could be a real headache getting the other leaseholder to pay their share of repairs.

I think I'm better off sticking to a normal freehold house and just look after myself as I'm the only person I can definately trust.

Liz1966

Hi,

I lived for many years in this situation, being the freeholder for 2 flats with the upper flat being leasehold.

It can be an issue with mortgage companies if you mention the words 'freehold' and 'flat' in the same sentence, however, if you refer to it as being the freeholder of the building with part of the building being on a lease, then it is not an issue.

I didn't have any issues over maintenance etc. The deeds & lease set out clearly who was responsible for what. There were no communal parts as both flats had seperate entrances. If there are communal parts it is more complicated as there will have to be maintenance, cleaning and responsibilies for the freeholder in relation to health & safety, asbestos, fire risk etc.

On the basis of my experience I would be happy to buy with this arrangement again but I wouldn't do it if there were communal parts to the building.

Frances63

Thank you Liz, that's reassuring. There is a just small hallway (not communal stairs though) that would be shared by both flats, but that's all.

Fire Fox - I have been reading through the 'guide to how leasehold works' under the link you very kindly gave me. There is a section that states:
Should I buy a leasehold flat?

If you want to buy a flat, rather than a house, then you have little choice.
Present property law in England and Wales effectively requires that flats be leasehold, although some leasehold flats are now sold with a share of the freehold through participation in a residents management company. In addition, legislation introduced in September 2004 does allow for a new form of tenure known as commonhold, where the flat is held on a freehold basis.

Now if I am the freeholder, then is my flat a freehold flat? or a leasehold flat that I happen to additionally be the freeholder of (along with the ustairs flat)? Or is this just semantics and not really important?

The part in (my) red above seems to be saying that a freehold flat per se is not lawful? Is this why mortgage companies refuse to lend on them?

That would seem odd as the auction Co-ordinator (it's being sold through one of those on-line conditional auctions) tells me the street is full of maisonettes where the ground floor holds the freehold for the building. So it must be very common, and therefore surprising that it causes a problem with lenders.

Could anyone point me to where I can find details of the 'property law in England and Wales that effectively requires that flats be leasehold'?

kingstreet

You effectively become two legal entities.

You are the leaseholder of the flat on the one hand and you are the freeholder of the building on the other.

The fact you own the freehold does not make your flat a freehold flat. It is still subject to the lease and should remain so, to avoid any issues in future.

I cannot remember a mortgage application which would require a declaration to be made that leaseholder and freeholder are one and the same.

A lender and its conveyancer should ensure that the terms of the lease are acceptable and that the property remains mortgageable.

Richard_Webster

If you say "freehold" and "flat" to a mortgage person they get all worried - but as I have said in my previous post OP's situation is accepted by most major lenders. However their branch personnel may not understand it so you almost have to quote the CML Handbook to them and say that you fall within 5.8.1 so what's their problem? Only then may someone look it up and admit it is OK.

This is all explained in great detail on my website - but you will have to find it as I can't advertise.

Essentially you do not have a freehold flat but a freehold building with another flat in it on a long lease.

The situation to be avoided is where each flat has its own separate freehold title for its part of the building. That is effectively unmortgageable - except a few lenders will lend on them in the Scarborough area for some reason.

brit1234

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