Leasehold flat/Freehold

extrememonkey

Hello all, my first post here and it maybe a toughie, so appologies to start with....

The Story So far....

My wife and I are looking to purchase a leasehold ground floor flat which is part of a Victorian House converted into two flats.

With the purchase of the leasehold, comes the Freehold of the entire building. The upstairs flat is on a leasehold for 99 years paying £80 pa ground rent (due to rise either this or next year), and the flat we would purchase the same (but as we hold the Freehold, that makes the lease pretty much redundant).

My questions are:

Insurance wise, what would we be liable to insure, just the flat downstairs or the whole building? If the whole building, is there a special type of insurance for this situation?

What would the norm be if the roof had a leak, who would normally pay to have this fixed, us as the freeholder using the groundrent and our own money, or is the cost split between us and the upstairs leaseholder?

Im sure this will open up a whole differant can of worms, so please expect several more questions!


Martin

sooz

It would depend on the wording of the lease for the flat upstairs.

But normally, you as freeholder would insure the entire building, and recover half the costs from the leaseholder upstairs.

The same applies for any major works - but you would need to follow the proper consultation process.

For minor works, you don't need to follow the consultation process, but bill the upstairs for half the building works.

Your solicitor will be able to advise you further

Doozergirl

All costs are split between the two flats.

The lease will detail whether you purchase buildings insurance for the building and split the cost between you and them(most common I think) or whether you each arrange your own. I've used an independent mortgage broker for the buildings insurance on our freehold in the past, as they deal with the more unusual stuff.

If there is work to be done, you split the cost between you as well, only because you are a leaseholder, not because you are the freeholder.

As a freeholder, you have obligations, but all costs are absorbed by the leaseholders.

The ground rent is yours to keep.

EDIT: When were the leases issued?

extrememonkey

Doozergirl wrote: »

EDIT: When were the leases issued?

Not sure when the leases were issued, thats one of the things we are finding out at present.... Am I correct in thinking that the lease for downstairs is next to near irrelevant due to us owning the freehold?

Doozergirl wrote: »

As a freeholder, you have obligations, but all costs are absorbed by the leaseholders.

What obligations does the freeholder have?

Doozergirl

extrememonkey wrote: »

Not sure when the leases were issued, thats one of the things we are finding out at present.... Am I correct in thinking that the lease for downstairs is next to near irrelevant due to us owning the freehold?

It is not irrelevant no. The lease is still very important and will still be looked at by mortgage companies for lending purposes. You should ask the vendors solicitor to arrange for the lease on your flat to be extended to as long as possible - 999 years really. Although you won't charge yourself for the lease extension, it costs in legal fees to do it, so let your vendor absorb the cost while their solicitor is already at work.

extrememonkey wrote: »

What obligations does the freeholder have?

The obligations of freeholders and leaseholders are laid out in the leases. You really need to read through it. You can still be confident that all costs belong to the leaseholders.

It may be, with a ground rise imminant, that the leases are due for extension. Many EAs are unaware of the value of lease extensions so if the lease on the other flat has run down to 80 years or under then it's a possible bonus/bit of added value for you.

fimonkey

Check with your solicitor, but it sounds like you'll be buying a 'flying freehold' in that your mortgage will be on the lease of your flat and the freehold you own will have nothing to do with the mortgage company. That's why the lease is important to you, because your mortgae is secured on it (hence the need for a long lease so mortgage companies will lend against it).

extrememonkey

So I should ask that the vendor to get the lease extended upto 999years prior to buying?

Also, if the lease on the other flat is less than 80 years they will want to renew it? To 99 years or more? If so how do they do that, through there solicitors and ours (if we buy)? And what amount of money will that cost us roughly? Or how much are we likely to recieve for the lease extension?

Sorry for all the questions, but I know sod all, and you seem really clued up on all this....

Doozergirl

fimonkey wrote: »

Check with your solicitor, but it sounds like you'll be buying a 'flying freehold' in that your mortgage will be on the lease of your flat and the freehold you own will have nothing to do with the mortgage company. That's why the lease is important to you, because your mortgae is secured on it (hence the need for a long lease so mortgage companies will lend against it).

That isn't what a 'flying freehold' is, fimonkey

I started to type out a long convoluted reply regarding the securing of the loan but I am certain it would only confuse the OP so I won't do it.

It is preferable if their flat has it's own seperate lease and not just the freehold but it isn't really a problem if they own the freehold and part of the building is sold off on a lease as it's pretty common.

Whatever it is, it isn't a flying freehold as there are leases involved.

Doozergirl

extrememonkey wrote: »

So I should ask that the vendor to get the lease extended upto 999years prior to buying

Yes.

extrememonkey wrote: »

Also, if the lease on the other flat is less than 80 years they will want to renew it? To 99 years or more? If so how do they do that, through there solicitors and ours (if we buy)? And what amount of money will that cost us roughly? Or how much are we likely to recieve for the lease extension?

They may want to renew it. It's up to them when that happens. I'd say it's normal for it to happen when the lease falls below 80 years and they come to sell. The request may be driven by their buyer, it may not. Once it gets to 70 years then it is harder to obtain a mortgage and so any buyer's solicitor should recommend extending the lease.

After owning the flat for 2 years, a leaseholder can ask for an extension of a further 90 years. The entire cost is borne by them. If they want to extend then you bill them for the cost of a specialist surveyor to value the lease for you. Then you negotitate a price, and they pay your legal fees as well as their own and pay you for the new lease.

The amount of money you get is dependent upon the amount paid in ground rent, the value of the flat, the number of years left on the lease and some other complicated figure. There is a calculator somewhere if anyone else has the link? You'll need to know the length of the existing lease.

As an example, for a flat with ground rent of £50 with a lease of 63 years and a value of £150,000, I was given a valuation of £12,500. The length of the lease is pivotal.

extrememonkey

I kinda know what a 'Flying Freehold' is and that has nothing to do with my possible purchase.

Ok, so the lease needs to be upped to 999years prior to completion, by the vendor through his solicitor. This will save us money, as we will be buying a 999yr lease for the purchase price?

If the Leaseholder of the other flat needs/wants to renew his lease as it has dropped below a certain level, we would get the money for that if it was done after we complete? If done prior, the current owner would recieve that?

Example of the situation as it stands is that we would buy the leasehold of said flat for £xxxxx with a deposit and mortgage, the freehold will be purchased seperately from savings but have nothing to do with the mortgage.

Doozergirl

Oh. This just gets more complicated!

If the freehold is an entirely seperate transaction then the existing freeholder can't just sell it to you, I believe that they have to offer the freehold to be shared amongst all leaseholders first. It cannot just be sold on the open market without being first rejected formally by the leaseholders. It also can't be sold for any less than it was offered to the leaseholders for.

If the freehold belongs to the person who lives in one of the flats and there are below a certain number of flats, then I don't *think* that the freeholder is obliged to offer it to the leaseholders collectively.

You are going to have to have a chat with the people at the Leasehold Advisory Service (www.lease-advice.org)

We're way out of my comfort zone now I've got to pop out but I'll try and find some info when I get back.