Freehold purchase with no ground rent entitlement

benjus

Some background:

• My wife and I own a leasehold flat in a converted building in England.
• The lease (from the 1990s) is between the lessee, the freeholder (the company that converted the site, let's call them C) and a management company (let's call them S) that would manage the building and receive the service charge and ground rent.
• About 5 years ago (before we bought the flat) the residents exercised right to manage and formed an RTM company. So the service charge is now paid to this company.
• The company S has gone through various mergers and sales of interests and is no longer a party to this. We now pay ground rent to a company which specialises in the admin side of leasehold properties (let's call them E).

Just before Christmas, C wrote to all residents notifying us of their intention to sell their freehold interest, giving us first refusal as they are obliged to. The letter mentioned selling both the reversionary interest and the entitlement to ground rent. We decided to accept the offer and one of the other neighbours found a solicitor, formed a company to own the freehold etc.

He has just forwarded us a message from C's solicitor via our solicitor saying that because the lease specifies explicitly that ground rent and service charges are payable to S (which is "highly unusual" in their opinion), they cannot sell the entitlement to ground rent but only the reversionary interest.

As I don't have direct contact with our solicitor I can't really do much myself to investigate, but I was wondering if anyone had experience of this sort of situation. Is there any advantage to us to acquire the reversionary interest without the entitlement to ground rent? What exactly would we be buying? What would it mean in terms of extending the leases?

anselld

What does your Solicitor advise?

Lilla_D

I used to own a flat, where we also exercised the right to manage. However, we did not buy the freehold. We used the Leasehold Advisory Centre for RTM related matters, but they may be able to help with your query as well.

benjus

anselld wrote: »

What does your Solicitor advise?

As I said, I'm not in contact with the solicitor - one of the other residents is managing the process. Even if the solicitor is happy to discuss with me, I don't want to complicate matters further by opening another channel of communication. The email he sent to the other resident just highlights the issues without really commenting on them (other than to say it may affect the price we want to pay).

But I would like to know a bit more about what could happen and what options might exist. Or even whether or not this scenario even makes sense.

eddddy

benjus wrote: »

We decided to accept the offer and one of the other neighbours found a solicitor, formed a company to own the freehold etc.

benjus wrote: »

Is there any advantage to us to acquire the reversionary interest without the entitlement to ground rent? What exactly would we be buying? What would it mean in terms of extending the leases?

In general...

If the newly formed company has 'the reversionary interest', it means that the flats will belong to the newly formed company when the leases expire.

The newly formed company can grant lease extensions, if it wishes. It can choose to extend the leases for free, or it can choose to charge for lease extensions.

(Hopefully, you will all make a decision about whether lease extensions would be free or charged for, before you form the new company and buy the freehold - to avoid arguments later.)

benjus

eddddy wrote: »

In general...

If the newly formed company has 'the reversionary interest', it means that the flats will belong to the newly formed company when the leases expire.

The newly formed company can grant lease extensions, if it wishes. It can choose to extend the leases for free, or it can choose to charge for lease extensions.

(Hopefully, you will all make a decision about whether lease extensions would be free or charged for, before you form the new company and buy the freehold - to avoid arguments later.)

Thanks - that's very helpful.

What would the involvement of the company that receives the ground rent be likely to be? Would they have to approve the new leases to ensure that the ground rent terms are not being changed to their detriment? If so, presumably they could charge for this...?