Taking advantage of an unmortgageable shared ownership?

JazCE

I own 50% of a flat in London in a shared ownership deal(?) with L&Q. Currently, because of all the issues with cladding, it seems my block of flats is unmortgageable.

Now my understanding of shared ownership is that I can buy the rest at market rates (I own 50%, flat is worth 350k, so to buy the other 50% i'd pay £175k). If the flat is unmortgageable, it means it's worth £0. I'd like to take advantage of this situation and buy the rest of the property for as little as possible. I'd be taking on the future risk, but I think it's worth it.

Has anyone else managed to do this? What would I have to look for in the contracts that might get L&Q off the hook for having to sell for £0 (or well close to, I don't expect £0 really).

Caz3121

Just because a lender is not prepared to take the risk on lending on the property does not mean that there is no value to the property
You will see many properties advertised for cash purchasers only (and they are not free)
if the property is £350k, 50% would be £175k (£125k would be 50% of £250k)

eddddy

JazCE wrote: »

If the flat is unmortgageable, it means it's worth £0.

No. An unmortgageable property is typically worth less than a similar mortgageable property - but it's not worth £0.

Rightmove has very many properties that are advertised for 'cash buyers only'.

JazCE wrote: »

What would I have to look for in the contracts that might get L&Q off the hook for having to sell for £0 (or well close to, I don't expect £0 really).

I suspect the catch might be as follows:

• The flat will be valued as though the freeholders and leaseholders have performed all relevant covenants in the lease

• There's likely to be a covenant which effectively requires the freeholder to replace unsafe cladding with safe cladding.

• So the flat will be valued as though the freeholders have replaced the unsafe cladding with safe cladding.

Edit to add...

If that wasn't the case, you could wreck the flat internally yourself to reduce its value, then get it valued as a wrecked flat, and buy the other 50% cheaply.

AdrianC

JazCE wrote: »

I own 50% of a flat in London in a shared ownership deal(?) with L&Q. Currently, because of all the issues with cladding, it seems my block of flats is unmortgageable.

Now my understanding of shared ownership is that I can buy the rest at market rates (I own 50%, flat is worth 350k, so to buy the other 50% i'd pay £175k). If the flat is unmortgageable, it means it's worth £0. I'd like to take advantage of this situation and buy the rest of the property for as little as possible. I'd be taking on the future risk, but I think it's worth it.

Has anyone else managed to do this? What would I have to look for in the contracts that might get L&Q off the hook for having to sell for £0 (or well close to, I don't expect £0 really).

The flat is worth 350k, temporary cladding issues notwithstanding. So the 50% is worth £175k, again cladding notwithstanding. The issues impact that value, sure. But not by 100%.

They are under no obligation whatsoever to agree with your "But it's worth £0" theory (not least because it's patently guff). Let's put it this way - if the building needed to be demolished for some infrastructure project and a compulsory purchase order came in, would you agree with a £0 valuation for your existing 50%? No, thought not... So...

lees80

If you think it's worth £0 to buy the 50% share, the same applies to your 50%. I'll give you £100 and take it off your hands.

JazCE

eddddy wrote: »

No. An unmortgageable property is typically worth less than a similar mortgageable property - but it's not worth £0.

Rightmove has very many properties that are advertised for 'cash buyers only'.



I suspect the catch might be as follows:

• The flat will be valued as though the freeholders and leaseholders have performed all relevant covenants in the lease

• There's likely to be a covenant which effectively requires the freeholder to replace unsafe cladding with safe cladding.

• So the flat will be valued as though the freeholders have replaced the unsafe cladding with safe cladding.

Edit to add...

If that wasn't the case, you could wreck the flat yourself to reduce its value, then get it valued as a wrecked flat, and buy the other 50% cheaply.

Thanks for the sensible reply. Obviously the £0 is just facetious nonsense, however whilst you can buy cash only properties all throughout rightmove I've not seen a shared ownership cash only property. Thus making me wonder if there is a decent way to game it. I'd be expecting perhaps to pay £100k for the other half rather than the full value. If without this issue, there was a price crash and it dropped from £350k to £120k, i'd only be paying £60k.

Obviously I can't wreck the flat as that would go against the covenants. Whereas this structural (?) issue, doesn't go against the covenants, but makes it harder for all parties to sell.

eddddy

JazCE wrote: »

Whereas this structural (?) issue, doesn't go against the covenants....

I wouldn't be so sure. You need to read your lease carefully.

The freeholder will have covenanted to maintain the structure of the building.

And/or the Freeholder might have covenanted to "comply with the requirements and directions of any competent authority…." or similar

And/or there may be other covenants in the lease that apply to the replacement of cladding.



Looking at it another way...

Is the freeholder intending to replace the cladding? And is the freeholder intending to charge leaseholders for replacing the cladding?

If so, there must be a covenant that requires the freeholder to replace the cladding.

Tom99

I would be more worried about whether the cost of replacement cladding was going to end up on my doorstep.
Presumably to staircase to 100% you 1st pay the HA for a valuation so you could always do that to test your theory without committing yourself.
What does your lease say about paying a share of external repairs?

SmashedAvacado

a landlord's obligation in this case is almost always backed by a tenant's obligation to pay. So my view is that the value would be heavily depressed because it is likely that the owner of the flat is going to have to pay a significant amount in service charge to get the cladding replaced.

Gaming it is doing this in the hope that the government step in and pay for it - as otherwise you will have to pay for it - so the depression in value is offset by the fact that you have a very large service charge liability.

The problem with the service charge route is that many people will not be able to afford to pay - which is why the government had considered legislating but hasnt on all cladding yet.

ThePants999

The OP already owns 50%. Doesn't shared ownership typically involve the part-owner paying all of the maintenance costs anyway?

ACG

Have you asked them to send someone out to value it? Why not do that and see what comes back? You can presumably talk it through with the surveyor and go from there with it?

Realistically they are not going to come back and say it is worth £1 because someone would quite clearly pay more for that even if they are cash buyers.

They may be happy to take a hit on the property in order to reduce their liability for any changes to the cladding needed, but you are only going to find that out by speaking to the housing association. Maybe speak to them beforehand?