Share of freehold major issue

streetspirit

Dear all,

I have seen a few people post on here with freehold troubles and want to share mine.

I bought a flat in 2017 as a first time buyer with one third share of freehold. It is a converted Victorian town house which now comprises of three flats. The other freeholder owns the other two thirds. They let out one of their flats and their third flat was sold as a leasehold. It has always been understood by us both that my freehold is associated with my flat. The leaseholder has paid the other freeholder ground rent.

I am trying to sell my flat and right on the week of exchange, my buyer's solicitor asked if Right of First Refusal was given to the leaseholder. It hadn't. When I spoke to the leaseholder, they told me they had never been asked this before. They have been living as a leaseholder for 9 years, during which they would have had two other opportunities for Right of First Refusal, but was not given it. They have said they want to buy my freehold. My buyer will not buy the flat without share of freehold.

I have read about RFR and have argued I am an exempt landlord as I live in the property, it is my sole residency, the leaseholder owns 33% of the flats, not over 50%, and I am not their immediate landlord. However, apparently, because the other freeholder is not exempt and we are joint freeholders on the title deed, I am not exempt either.

I am now asking my solicitor if a declaration of trust can be drawn up to resolve the issue. I am asking if the declaration of trust can set out how the freehold is shared, so that the third share of freehold bought with my flat always remains within ownership of the flat owners.

Has anyone been in this situation or can advise? Will a declaration of trust sort it out?
I am at risk of losing the house we are buying and feel totally gutted as it has never been picked up before to give the leaseholder RFR. It seems absurd in this situation. If leaseholders/freeholders always have to be given notice, is there not a risk it will always move around the occupiers in this way? If my flat sale falls through, but I remain a leaseholder having sold my freehold to the current leaseholder, will I not be able to buy it back off them again when they come to sell? I feel RFR is for specific properties and this is not one of them...

Thanks for any help!

Doozergirl

My knowledge on this stuff is really rusty, but it doesn't sound right that the right of first refusal has to be given every time one flat changes hands. Every transaction would be a nightmare otherwise and managing a block almost impossible.

My understanding of share of freehold is that a company is usually set up to own the freehold and that people own shares in that company. Presumably, the shares are transferred rather than the actual freehold being sold. I would think that RFR applies only when the full freehold is being sold.

Despite owning a share of the freehold, you will always hold a separate lease as that is what affords you all the right of support and protection. You cannot tie your share of the freehold inextricably to the flat.

I'm sure someone will be along imminently when it's properly morning, but back in the day, you'd be able to give these helpful people a ring for advice:
https://www.lease-advice.org/

streetspirit

Thanks for replying, glad me and my family are not the only ones who think this isn't right. RFR hasn't been given to this leaseholder before and this is the third time it's changed hands since the leaseholder bought the lease. Either previous solicitors all missed it, or the buyer's one is wrong. It feels as though my buyer's solicitor is calling the shots here, anything I say is not being accepted even though my buyer's solicitor has apparently said they are not comfortable with this area of law.

I hope the case is that it only applies when the whole freehold is being sold, that would save us!
Otherwise when this leaseholder comes to sell, I could just do the same!

Tom99

There was another thread on this very subject last year:
https://forums.moneysavingexpert.com/discussion/5856076/share-of-freehold-flat-purchase-right-of-first-refusal
Unfortunately there was no easy answer as to why RTB does not apply.
If it does apply it would make nonsense of the legislation allowing leaseholders to buy the freehold as every time a lease was sold that tenant could be deprived of there share of the freehold.
If the freehold was owned by a company and only a share in the company was transferred there would be no problem but my understanding is that the transfer to a company would in itself create a RTB.

ethank

Whilst you and the other freeholder have operated that you own the freehold to your own flats. I am not sure the law supports that....

streetspirit

Thanks, I've read through that. A very similar situation! Really infuriating. Yes, perhaps that is why it doesn't always come up, as it is a conveyancing nightmare so solicitors turn a blind eye. Regardless, my buyer's solicitor is keeping to RFR as if the leaseholder were to claim it after purchase, they could be sued for a lot. At a later stage, do I also have that right given I was not told about this when I bought it?!

If this RFR is correct and it means we can't sell and buy, but my share of freehold goes, I will certainly be exercising my RFR when the current leaseholder comes to sell. It is absolute nonsense.

What also confuses me is the 50% qualifying tenants clause. My situation is:

Two freeholders:
x (2/3 share of freehold)
y (me, 1/3 share of freehold)

Flat 1: Leaseholder (x freeholder first 1/3 share)
Flat 2: let out (x freeholder second 1/3 share)
Flat 3: my flat (y 1/3 share of freehold)

And as the other thread pointed out, the leaseholder does not make up more than 50% of the qualifying tenants.

And I have also read that converted properties are excluded, so I am not sure why this has even arose. Please say there is a solution?

Tom99

streetspirit wrote: »

Thanks, I've read through that. A very similar situation! Really infuriating. Yes, perhaps that is why it doesn't always come up, as it is a conveyancing nightmare so solicitors turn a blind eye. Regardless, my buyer's solicitor is keeping to RFR as if the leaseholder were to claim it after purchase, they could be sued for a lot. At a later stage, do I also have that right given I was not told about this when I bought it?!

If this RFR is correct and it means we can't sell and buy, but my share of freehold goes, I will certainly be exercising my RFR when the current leaseholder comes to sell. It is absolute nonsense.

What also confuses me is the 50% qualifying tenants clause. My situation is:

Two freeholders:
x (2/3 share of freehold)
y (me, 1/3 share of freehold)

Flat 1: Leaseholder (x freeholder first 1/3 share)
Flat 2: let out (x freeholder second 1/3 share)
Flat 3: my flat (y 1/3 share of freehold)

And as the other thread pointed out, the leaseholder does not make up more than 50% of the qualifying tenants.

And I have also read that converted properties are excluded, so I am not sure why this has even arose. Please say there is a solution?

I don't think converted properties are excluded, where did you read that?
Re the qualifying tenants, there are two, you as leaseholder of flat 3 and the long leaseholder of flat 1.
There are two qualifying tenants and more that 50% of them need to accept the RTB offer, assuming you as one of those two would refuse to take up the offer the other leaseholder is not able to do so on their own.

eddddy

Tom99 wrote: »

I don't think converted properties are excluded, where did you read that?

I think the OP may be referring to this:

The RFR does not apply to the following landlords:

<snip>

...resident landlords who live in the building where the following two conditions apply:

• the building is not a purpose-built block of flats, that is, it must be a property, a house for example, which has been converted into flats since its original construction; and

• the landlord genuinely lives in the building as his only or principal residence and has done so for more than 12 months.

Link: https://www.lease-advice.org/advice-guide/right-first-refusal/

So Converted properties would be excluded, if the landlord (freeholder) lives in the building.

So it sounds like the problem is that the other joint freeholder doesn't live in the building. (Is it correct that the other joint freeholder doesn't live in the building?)

streetspirit

I read it here:

lease-advice dot org

RFR does not apply to some landlords. These include most housing authorities such as councils, housing associations, charitable housing trusts and certain resident landlords.

An exempt resident landlord is one who lives in the building and where two conditions apply

The building is not a purpose built block, for example a converted house, which has been converted into flats since its original construction and
the landlord genuinely lives in the building as his only or principal residence and has done so for more than 12 months.

But apparently because the other freeholder doesn't live at the property, I'm not exempt. We are joint tenants, not tenants in common, on the title deed. This is despite it saying in the land registry title deed that I signed, I own one third share and the other freeholder owns the other two thirds. I'm hoping a declaration of trust could override it? Or someone with specialist knowledge can safely say RFR does not apply in this type of situation?

Tom99

streetspirit wrote: »

But apparently because the other freeholder doesn't live at the property, I'm not exempt. We are joint tenants, not tenants in common, on the title deed. This is despite it saying in the land registry title deed that I signed, I own one third share and the other freeholder owns the other two thirds. I'm hoping a declaration of trust could override it? Or someone with specialist knowledge can safely say RFR does not apply in this type of situation?

What makes you think you are joint tenants? To own 1/3rd you need to be tenants in common.

eddddy

streetspirit wrote: »

Please say there is a solution?

You could just sell the flat as a leasehold flat (with no promise of a 'share of freehold').


Then sort out the issues with transferring the freehold at your leisure - maybe transfer ownership of the freehold to a company, and deal with the associated RFR.

At some time in the future, when everything is sorted, you can then offer to sell your share in the company to whoever has bought your flat (at a reasonable price).