Flat advertised as share of freehold, but doesn't actually seem to be

pithakos

Hi all, first time poster so go easy on me!

We put an offer on a flat at the end of July, advertised as share of freehold with a private garden, in a Georgian mansion block. The process has moved incredibly slowly do the ill health of the vendor, whose family are selling the flat with power of attorney. We made a high offer tens of thousands above asking in a 'best and final' bidding war (and well above our competitors) based on the share of freehold information and private garden.

We just finally got all the forms, packs, reports etc from our searches and there are some concerns. We continue to have questions about the share of freehold status. Looking on companies house and through the accounts supplied, the seller owns a share in a management company entitled [Name of block] MANAGEMENT COMPANY LIMITED. This company has two directors, Joe Bloggs and John Doe. Joe Bloggs is also a director of Random Flats Owning Company Ltd, which is listed as the Freeholder of the property in the lease and is listed as owning the freehold of hundreds of other properties nationwide. The Management Pack lists the Landlord as Random Flats Owning Company Ltd, the Management Company as [Name of block] MANAGEMENT COMPANY LIMITED and a Managing Agent, which is a property management firm, which the LPE1 form indicates is appointed by the Landlord.

This gives us some pause. We currently own a share of the company which owns our freehold now which offers us the right to manage repairs and important decisions relating to the property as a whole, to appoint and dismiss the managing agent, and to renew our lease for only the cost of legal fees. If we are beholden to a separate freeholder, we are particularly concerned about having to deal with expensive negotiations around renewing our lease. Because we threw all our money in the offer, expecting not to have to renew the lease, we don't have a slush fund to cover this and the lease is only around 90 years remaining which means realistically we would have to do this before we next sold and we simply won't be able to save up that kind of money in our current financial situation.

(On a lesser but still highly annoying note - the garden isn't technically private after all but has a 'pathway' going through it that all leaseholders are licensed to make use of, which is really annoying, plus the service charge is double what the estate agent suggested it was per year, more than £3k).

Thoughts? Does anyone have experience of owning a share of the management company where that management company does NOT own the freehold? What were the implications?

Also, any tips on negotiating with the seller, particularly since the flat was advertised incorrectly? It wasn't done in bad faith, we think they simply didn't know better - but this makes us worried that they'd have no appetite to negotiate.

goodwithsaving

I only have experience in owning a share in a company which owns the freehold. I have to say, I've been very fortunate and the property management company representing the freehold company has been brilliant.
However, I wouldn't buy a leasehold again.
That said, if you are buying a flat and particualrly in areas where a flat can be the only 'affordable' option, I appreciate there is often no alternative. I would speak to a few people and ask; does it affect the overall value greatly? I would also enquire with the company on their turnaround times, cost of management pack for when you come to sell in the future and obtain the past 5 years accounts (your solicitor will request 3 and it's better to get copies sooner).
A £3000 service charge isn't the highest I've heard of, but isn't the lowest either. If you're intending to renew the lease, you need to question whether you can afford it all without stretching yourselves.

Have you kept an eye on rightmove? Is it worth viewing others? At least it may confirm whether the doubts you are having are worth pulling out over, or it may confirm that the property you are intending to buy is right for you.

Tom99

I think you should revise your offer since you don't own a share of the freehold.

Any lease extension would be at arms lenth under the usual rules.

eddddy

Regarding a couple of the issues you mention, you could do the following:

- Specify that you require the lease extended to 999 years on completion. (If it really is a share of freehold, this should be achievable. There's likely to be legal fees associated with this, you can decide who you think should pay them.)

- if you think the path through the garden devalues the property, reduce your offer.

AlexMac

I would be thinking twice about this and asking for a substantial reduction, or backing off and swallowing the few hundred in leagl fees.

I have deliberately only ever gone for real "shared freeholds" (which I know is a legally vague term, but is usually understood as the set up where the individual leaseholders collectively control the Freehold AND Management by being Members or Co-Directors of a Freehold Company. If a Managing Agent is involved, they do waht the leaseholders want; and are not a profit centre for themselves or an unaccountable Freeholder).

In each of the three leaseholds I've owned, the arrangement was clearly described in the Company's Constitution, "Mem & Art" or Articles of Association.

These gave me control, albeit as one of the members or Directors of the Company, of Service-Charges, spending and management. In each case, we self-managed the blocks of between 6- 13 flats; all of them in 100-150 year-old converted properties; so quite maintenence-intensive. As a consequence my Service Charges were really low; from £420 pa - £1,350 pa. And the higher one included not only the usual insurances and communal maintenence, but covered a big bung to Estate landscaping AND a sinking fund contribution to a fund big enough to cover external decorations every 5-6 years.

What you describe is very different, and £3,000 seems toppy, unless it includes a big sinking fund contribution, gym, swimming pool, concierge services, etc (which I doubt).

So get your solicitor to do their job and explain the set up to you, and if you do decide to proceed, go in hard for a massive discount- via your solicitor, spelling out why

pithakos

Thanks all. We've been in the hellish deathmarch of trying to sell our (perfectly nice) one bed first floor flat and buy a two bed since March 2016, when I was three months pregnant. So we were really hoping that we'd got all our ducks in a row this time and feeling very dispirited by the thought of starting it all again if they don't agree to a a reduction (particularly as we've got the mortgage all locked in at a cost of over £1200 as well). We have kept an eye on the market (a 3 mile swathe of South London) but it's dry as a bone right now for what we need. Don't want to get too political but everything went extremely pear shaped after the vote last June, heavily exacerbated by the BTL tax changes.

We can't afford a house where we are sadly, so leasehold or share of freehold is our best bet - and we don't mind share of freehold so much now but our service charge is much much lower. The £3k covers a hefty reserve, but the costs are generally high because the freehold is for three large blocks on the same road and so the costs are for three separate buildings. A big external refurb is planned for later this year at an eye watering cost of £135k, with only £100k in reserves so we know we're exposed to at least £2k more then as well.

We're leaning heavily towards negotiating a reduction (because we can't afford the associated costs otherwise) but are feeling at a loss as to how to convince them not to just ditch us and try to resell. We know the market is all over the shop right now because we've been watching it for 18 months, but the sellers don't...

AirJoe

I am no expert but it sounds like the leaseholders have exercised their Right to Manage. This means that they've set up their own management company and taken over the maintenance of the wider property from the freeholder.

This should mean you have more say in the ongoing costs of maintenance but you won't be able to extend the lease without going through the freeholder, because, as you've correctly surmised, this is not a share of the freehold.

£3,000 is expensive but you said it was a Georgian mansion block so I'd expect it to be costly and the right to manage implies the residents have already tried to get the best deal so it's probably just the cost of that property. As others have said there really should be a solid sinking fund for that kind of cost to insulate you from any other big hits to the wallet down the line. If there isn't then understand that flat is going to be VERY expensive to run.

As far as extending the lease goes, I'd recommend a statutory extension over haggling with the freeholder. Do it before you reach 80 years on the lease and you'll get 90 years added at a fair price.

With regards the private garden, if it's truly private and included in the lease then you should have a fair amount of freedom for things like fences or hedging to mask it from the communal pathway. The layout may not make that feasible but it's just a thought.

Lastly, forget about what has already happened and forget asking price etc. All that previous stuff is irrelevant. Ask yourself one question in the here and now. Do you think the flat, evaluated as is, is worth what you're paying? Simple question. Sometimes hard to answer.

Best of luck!

goodwithsaving

Very useful post from AirJoe!