Buying a flat that owns freehold for whole building

tdarr

Hello all, I’m hoping I may be able to get some views on the below:

I’ve had an offer accepted on a place in London I’m just starting the mortgage process.

- its a top floor flat in a Victorian house, with one other flat downstairs
- the top floor flat owns the freehold for the whole house
- both flats have separate leases with 97 years left remaining on both
- so I would effectively own the freehold for the whole building as well as having my own leasehold

I’ve had a lot of conflicting advice as to if I can get a mortgage with both the freehold and leasehold held in my name. The first broker I approached looked into this and after some research said that lenders would only consider lending if the freehold was bought through a limited or management company (that I would set up in my name)

Our solicitor has said that he views this to be a complex way of doing it and sees no reason why the freehold has to be purchased through a company.

I’m in conversation with another broker now who also finds it surprising that we should have to go down this route, they are looking into options now.

I’m finding it very hard to get any clarity as to if this arrangement is seen as unusual or indeed unattractive to any future buyers. I’m wary of getting tied into something that is seen as overly complex.

Has anyone else on here had experience of this kind of set-up before?

Any thoughts or pointers much appreciated!

Many thanks

eddddy

tdarr wrote: »

I’ve had a lot of conflicting advice as to if I can get a mortgage with both the freehold and leasehold held in my name. The first broker I approached looked into this and after some research said that lenders would only consider lending if the freehold was bought through a limited or management company (that I would set up in my name)

Here's what lenders say about this:
https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/2056/

tdarr wrote: »

Our solicitor has said that he views this to be a complex way of doing it and sees no reason why the freehold has to be purchased through a company.

Some reasons for having a company own the freehold:

1) The same person cannot own a freehold and a leasehold (i.e. A lease cannot be between somebody and themselves). But it's fine to have a lease between a company you own, and yourself.

2) Perhaps this is a little immoral - but a company will have limited liability, and probably no assets (except the freehold itself). So if you do something negligent as a freeholder, you might be more protected from being sued for damages.

AdrianC

eddddy wrote: »

Some reasons for having a company own the freehold:

1) The same person cannot own a freehold and a leasehold (i.e. A lease cannot be between somebody and themselves). But it's fine to have a lease between a company you own, and yourself.

Yes, they can. No problem at all. It's usually a far simpler reason - not more than four joint owners can be registered with LR.

So if there's more than four... there's one. A company. The shares of which are then owned by multiple people.

Oh, and OP - "the flat" doesn't own the freehold. The person who owns the leasehold flat also happens to own the freehold. They're selling both together, but they don't need to. They could sell the freehold to downstairs, to a random investor, or just keep it.

edgex

What's the situation for service charges & ground rent?

Tom99

A relative of mine was the freeholder in a similar situation last year but there was no lease on their flat. They did not have any trouble selling the freehold, I think Natwest provided the purchasers mortgage.

tdarr

Thanks to all for the replies.

It turns out that in my circumstances lenders are only willing to lend to me if I buy the freehold through a company and get a mortgage with just the lease in my name.

I'm a company director so will be getting a mortgage based on company profits, this apparently makes things a bit trickier for some high street lenders.

Has anyone had experience of owning their freehold through a limited company and if so are there any particluar pitfalls I should be aware of?

thanks again

divadee

We own the freehold through a limited company (it's in joint names me and partner). We buy director insurance to cover ourselves if any leaseholder tries to sue us.

The only downside for us is living on site and owning the freehold (it's a block of 4 flats). Neighbours will rant and rave at us as we are available and on site. We do have a managing agent that look after the block for us but it's easier to rant at the person you see every day. We have got very used to saying "contact the managing agents" over and over again.

We are demon people at the moment as some structural work needs doing to the block and it's going to cost each flat over 1k so section 20's have been issued and according to 1 neighbour we should be paying all of it ourselves and shouldn't come to her for her share. She just doesnt understand how leases work.

If you get a very good neighbour you should be fine! Just read up on what you have to do as freeholder as it was very much more than we realised!

tdarr

Thankyou divadee for that reply, very informative. There is just one other flat in the building so fingers crossed the admin won't be too extreme. Thanks for the warning that there is more involved with being a freeholder than you might initially imagine - will look into this further

divadee

tdarr wrote: »

Thankyou divadee for that reply, very informative. There is just one other flat in the building so fingers crossed the admin won't be too extreme. Thanks for the warning that there is more involved with being a freeholder than you might initially imagine - will look into this further

It is defo worth a read up about it. For us I think it has still saved us money as an external company would jack our service charges up and we wanted to have the control over that. We have an incentive to keep them lower as we have to pay a quarter of them ourselves!

We are thinking of selling up next year but we will keep the freehold on as we hopefully will get some good fees from the low leases that people have let fall to below 65 years. If not every year they don't renew it increases the price of the freehold should we sell it eventually.

There is a lot you are responsible for sorting out, it may he worth you getting a managing agent if the other leaseholder is a pain. If they are good then you should be ok with just 2 flats.