Some Properties Advertised as Leasehold - Leasehold Reform Act 1967 to purchase Freehold

maton91

Hello all,

I'm looking to buy a house this year. I have started my search and a lot of houses in the area of interest are Leasehold. They are not new builds with most built around the 1930s era.

Having checked the land registry of some of these, it seems in all cases the Freeholder is a single party owning the section of land under the proterty with no other land in the area. Also seems the ground rent per annum in the register view is a small amount with a 800+ years lease from a particular date (e.g. 1st Jan 1935). This is all from the register view so I could be wrong here.

I have been advised not to purchase Leasehold properties because I guess they are not techically yours and could be trickier to sell if I wanted to, but having seen the above and learning about the Leasehold Reform Act 1967 to purchase the Freehold, should I be less anixous? My thinking is if I went ahead with a purchase I could:

1. Ask the current owners of the property to engage with the Freeholder to sell the Freehold and be included in the contract of sale (subject to them owning the house for over 2 years)
   
2. Go ahead with the purchase without the seller enaging with the Freeholder, I can then informally engage the Freeholder to sell once the sale is complete
   
3. Wait until I have owned the property for 2+ years then formally engage the Freeholder to sell which I have the right to buy under the Leasehold Reform Act 1967

Please advise.

oxfordowl1

Hi maton91, I was in exactly the same situation as you about four years ago. My plan was option 2, even though I haven't yet got round to purchasing the freehold yet. The freeholder has informally offered it for sale each year for roughly £1000 including their fees and costs. My ground rent is £4 per year and the lease originates from the 1930's.

I do think some of the people who say 'never buy leasehold' are reacting to modern practices and scandals. I would not be so absolute. I would however check with your solicitor that there are no circumstances which lead to an increase in ground rent.

Best of luck

princeofpounds

maton91 said:

I have been advised not to purchase Leasehold properties because I guess they are not techically yours and could be trickier to sell if I wanted to

Such blanket advice is just plain wrong. The vast majority of leasehold houses are perfectly fine, as long as you understand the differences. In many cases - not all - the practical differences are actually rather minor to freehold.

You can learn more about the process of buying the freehold of houses at the following link (and Lease Advice is generally an excellent resource for learning - you can even phone them to discuss questions; it's government funded). https://www.lease-advice.org/advice-guide/houses-qualification-valuation/

Almost all leasehold houses are eligible for buying the lease, but you must check with your solicitor if it's something you want to do. You can negotiate informally with the freeholder or formally pursue a statutory process through tribunal. The former route is usually quicker and costs less legal fees, the latter route takes time and costs more in legal fees, but has a certain outcome and a price essentially based on a formula.

Typically the process is to contact the freeholder and ask for a price. They will offer a silly price. You go back and tell them you'll get it cheaper at tribunal. They offer a more sensible price which is still a bit higher than the likely statutory price, but lower than the statutory price plus extra legal fees that you would incur. You agree and process the informal extension. Sometimes they are sensible up-front, sometimes you end up having to drag them to Tribunal anyway.

If ground rent is minimal, the lease is super-long, and there are no weird obligations to third parties in the lease, then frankly the cost of purchasing the freehold will be minimal - similar to your legal fees in fact. In such a situation, it also doesn't really matter that much whether you do the process in any of the ways you describe above - you'll end up in the same position after 2-3 years. Getting the vendor to serve a notice on the freeholder and assign the process to you is probably best, as that means you don't have the two year wait. You can also get the same solicitor to deal with the whole process, which may be a little bit cheaper. But it may make the purchasing transaction a bit more complex as a result (still routine though, just a bit more negotiation and paperwork).

maton91

oxfordowl1 said:

Hi maton91, I was in exactly the same situation as you about four years ago. My plan was option 2, even though I haven't yet got round to purchasing the freehold yet. The freeholder has informally offered it for sale each year for roughly £1000 including their fees and costs. My ground rent is £4 per year and the lease originates from the 1930's.

I do think some of the people who say 'never buy leasehold' are reacting to modern practices and scandals. I would not be so absolute. I would however check with your solicitor that there are no circumstances which lead to an increase in ground rent.

Best of luck

Thanks for your reply. Sounds like you've got similar to what I'm looking for.

The ground rent figure I've got from the land registry, I'm guessing there is a seperate leasehold agreement which has the accurate figure of the annual fee?

maton91

princeofpounds said:

maton91 said:

I have been advised not to purchase Leasehold properties because I guess they are not techically yours and could be trickier to sell if I wanted to

Such blanket advice is just plain wrong. The vast majority of leasehold houses are perfectly fine, as long as you understand the differences. In many cases - not all - the practical differences are actually rather minor to freehold.

You can learn more about the process of buying the freehold of houses at the following link (and Lease Advice is generally an excellent resource for learning - you can even phone them to discuss questions; it's government funded). https://www.lease-advice.org/advice-guide/houses-qualification-valuation/

Almost all leasehold houses are eligible for buying the lease, but you must check with your solicitor if it's something you want to do. You can negotiate informally with the freeholder or formally pursue a statutory process through tribunal. The former route is usually quicker and costs less legal fees, the latter route takes time and costs more in legal fees, but has a certain outcome and a price essentially based on a formula.

Typically the process is to contact the freeholder and ask for a price. They will offer a silly price. You go back and tell them you'll get it cheaper at tribunal. They offer a more sensible price which is still a bit higher than the likely statutory price, but lower than the statutory price plus extra legal fees that you would incur. You agree and process the informal extension. Sometimes they are sensible up-front, sometimes you end up having to drag them to Tribunal anyway.

If ground rent is minimal, the lease is super-long, and there are no weird obligations to third parties in the lease, then frankly the cost of purchasing the freehold will be minimal - similar to your legal fees in fact. In such a situation, it also doesn't really matter that much whether you do the process in any of the ways you describe above - you'll end up in the same position after 2-3 years. Getting the vendor to serve a notice on the freeholder and assign the process to you is probably best, as that means you don't have the two year wait. You can also get the same solicitor to deal with the whole process, which may be a little bit cheaper. But it may make the purchasing transaction a bit more complex as a result (still routine though, just a bit more negotiation and paperwork).

Thanks for your comprehensive reply. I feel a lot better about the option to purchase a leashold property. I guess as oxfordowl1 said most of the negativity is from regent scandals rather than historical 800+ year leaseholds from the 1930s which is what I'm looking for.

It also sounds like it's worth enganing with the freeholder once the sale is compelte (option 2) or else the process will be delayed.

A few more follow ups if you can help please:

1. Typically what can I not do in a leasehold property that I can in a freehold without permission? Some things I may want to do include ftting an electric shower, installing a CCTV system, changing the carpets, painting and decorating, having pets and installing a back garden shed
2. If I went through the informal route and the freeholder agrees to sell, how is the purchase completed without a legal team involved? Is it simply trust and then informing the land registry?

oxfordowl1

maton91 said:

Thanks for your reply. Sounds like you've got similar to what I'm looking for.

The ground rent figure I've got from the land registry, I'm guessing there is a seperate leasehold agreement which has the accurate figure of the annual fee?

No, the ground rent figure for me is identical to the figure on the original paperwork from the 1930's. I informally found out the amount from the estate agent and then it was checked by my solicitor as part of the usual checks.

I'm not certain what you mean by a separate leasehold agreement. The only paperwork I have is from the Land Registry. I had to pay an admin fee to the freeholder in order to change the name in the lease from the vendors to me.

The whole matter is dealt with rather amateuly in my opinion (which may be harsh, perhaps informally would be fairer) with about 4 different levels of sub-contracting.

It does not really cause me any concern. I just get on with enjoying living in our home. 

oxfordowl1

maton91 said:
If I went through the informal route and the freeholder agrees to sell, how is the purchase completed without a legal team involved? Is it simply trust and then informing the land registry?

When I finally get round to buying the freehold, I will go back to my solicitor for advice. Although unlike many, I was very satisfied with the service he provided and I trust him. I'd rather be protected than potentially miss something myself. 

For reference, using the lease calculator, purchasing my lease is about £80. I have no idea how much their costs would be if I went down the formal route. Their initial informal offer was for about £975 including all their costs and VAT. If I were a betting man I would bet that they could easily 'find' costs of more than £895!!! 

maton91

oxfordowl1 said:

maton91 said:

Thanks for your reply. Sounds like you've got similar to what I'm looking for.

The ground rent figure I've got from the land registry, I'm guessing there is a seperate leasehold agreement which has the accurate figure of the annual fee?

I'm not certain what you mean by a separate leasehold agreement. The only paperwork I have is from the Land Registry. I had to pay an admin fee to the freeholder in order to change the name in the lease from the vendors to me.

I guess I thought there would be a seperate leasehold agreement that states what you can and can't do under the T&Cs. For example having pets in the home, structual changes etc... how flexible has it been for you to do what you want to your home?

oxfordowl1

maton91 said:

oxfordowl1 said:

maton91 said:

Thanks for your reply. Sounds like you've got similar to what I'm looking for.

The ground rent figure I've got from the land registry, I'm guessing there is a seperate leasehold agreement which has the accurate figure of the annual fee?

I'm not certain what you mean by a separate leasehold agreement. The only paperwork I have is from the Land Registry. I had to pay an admin fee to the freeholder in order to change the name in the lease from the vendors to me.

I guess I thought there would be a seperate leasehold agreement that states what you can and can't do under the T&Cs. For example having pets in the home, structual changes etc... how flexible has it been for you to do what you want to your home?

I've done loads of work and have not been in touch at all with the freeholder. This includes new windows and doors, new roof, repointing, decorating, new shower, roof insulation, renewed electrics and relandscaped the garden.

I have not done anything that I would need notification and/or permission such as an extension or knocking down walls. I if decide to do such work, that will be a reason to buy the freehold to avoid the freeholders admin charge.

I think the asking the freeholder for permission for changes is a custom more honoured in the breach than the observance. 

princeofpounds

maton91 said:

Thanks for your comprehensive reply. I feel a lot better about the option to purchase a leashold property. I guess as oxfordowl1 said most of the negativity is from regent scandals rather than historical 800+ year leaseholds from the 1930s which is what I'm looking for.

It also sounds like it's worth enganing with the freeholder once the sale is compelte (option 2) or else the process will be delayed.

A few more follow ups if you can help please:

1. Typically what can I not do in a leasehold property that I can in a freehold without permission? Some things I may want to do include ftting an electric shower, installing a CCTV system, changing the carpets, painting and decorating, having pets and installing a back garden shed
2. If I went through the informal route and the freeholder agrees to sell, how is the purchase completed without a legal team involved? Is it simply trust and then informing the land registry?

The various 'scandals' are widely misinterpreted in the general public. There are several types:
- Service charge mismanagement - freeholders buying overpriced services either because they are associated with the supplier, or because they can take a management commission under the lease terms, or because they are just plain incompetent. Often possible to greatly reduce your risks with due diligence. For many leasehold houses, will be irrelevant as no material services are to be provided under the lease. Also a risk on newbuild freeholds that have estate management charges, and a lot of people confuse that with leasehold issues.
- Ground rent escalation - not really a scam, because it was always written plainly into contracts, but many mortgage lenders tightened criteria for what properties were mortgageable when they had escalating ground rents, leaving some people unable to remortgage. Does not affect you if you know what you are looking for, but unfortunate for those who were trapped by changes subsequent to purchase. Unlikely it could happen again as criteria is now more sensible, but not impossible.
- The AST trap. Government introduced a definition for AST tenancies that included some long leaseholds with higher ground rent. No-one cared, until the courts decided that freeholders could terminate the lease under AST procedures, which crucially don't require the same notification to be given to the mortgage lender. So mortgage lenders restricted what properties they would lend on. Does not affect you if you know what you are looking for, and easily solved if you extend your lease through the statutory process.
- Exploitative fee demands for routine consideration. When things like permission for alterations are required, the freeholder is often entitled to charge a fee for consideration. Some were asking unreasonable sums. This can easily be beaten but requires a trip to Tribunal which is disproportionately slow and expensive.

Regarding your timing and options, best to speak to your solicitor. I didn't mean to imply it will hugely delay your purchase if you try to get the lease extension process started. I don't know enough of the practicalities to be sure what advice you will be given, but I think the normal thing is for the vendor to send the freeholder a notice that kick-starts the process to acquire the freehold. They can then assign the rights that notice establishes to you. It's a question of a few letter back and forth. That means there is no 2 year waiting period before you can engage the statutory process. I don't think it stops you negotiating for an informal process with the freeholder in parallel, so the likelihood is you never need it, but it cuts the waiting time and establishes to the freeholder that any informal offer will have to 'compete' with what you could achieve at Tribunal.

As for your specific questions

1. It depends entirely upon the lease, so read it. Typically however, in a leasehold house you would be able to do most thing you suggest without impediment. An extension, significant internal works to the structure or large outbuilding, that's another question, but it's often still possible without permission. Even if you are required to have permission, it is 'not to be withheld unreasonably.', so normally you are just looking at paying some fees to get a stamp of approval, perhaps a survey. At worst, a trip to Tribunal.

2. You will need to get a legal team involved. There is a freehold title that will need to be sold and transferred, so it's a property transaction like any other. Informal just means that you don't go through the statutory process at Tribunal to establish a price.

maton91

princeofpounds said:

maton91 said:

Thanks for your comprehensive reply. I feel a lot better about the option to purchase a leashold property. I guess as oxfordowl1 said most of the negativity is from regent scandals rather than historical 800+ year leaseholds from the 1930s which is what I'm looking for.

It also sounds like it's worth enganing with the freeholder once the sale is compelte (option 2) or else the process will be delayed.

A few more follow ups if you can help please:

1. Typically what can I not do in a leasehold property that I can in a freehold without permission? Some things I may want to do include ftting an electric shower, installing a CCTV system, changing the carpets, painting and decorating, having pets and installing a back garden shed
2. If I went through the informal route and the freeholder agrees to sell, how is the purchase completed without a legal team involved? Is it simply trust and then informing the land registry?

The various 'scandals' are widely misinterpreted in the general public. There are several types:
- Service charge mismanagement - freeholders buying overpriced services either because they are associated with the supplier, or because they can take a management commission under the lease terms, or because they are just plain incompetent. Often possible to greatly reduce your risks with due diligence. For many leasehold houses, will be irrelevant as no material services are to be provided under the lease. Also a risk on newbuild freeholds that have estate management charges, and a lot of people confuse that with leasehold issues.
- Ground rent escalation - not really a scam, because it was always written plainly into contracts, but many mortgage lenders tightened criteria for what properties were mortgageable when they had escalating ground rents, leaving some people unable to remortgage. Does not affect you if you know what you are looking for, but unfortunate for those who were trapped by changes subsequent to purchase. Unlikely it could happen again as criteria is now more sensible, but not impossible.
- The AST trap. Government introduced a definition for AST tenancies that included some long leaseholds with higher ground rent. No-one cared, until the courts decided that freeholders could terminate the lease under AST procedures, which crucially don't require the same notification to be given to the mortgage lender. So mortgage lenders restricted what properties they would lend on. Does not affect you if you know what you are looking for, and easily solved if you extend your lease through the statutory process.
- Exploitative fee demands for routine consideration. When things like permission for alterations are required, the freeholder is often entitled to charge a fee for consideration. Some were asking unreasonable sums. This can easily be beaten but requires a trip to Tribunal which is disproportionately slow and expensive.

Regarding your timing and options, best to speak to your solicitor. I didn't mean to imply it will hugely delay your purchase if you try to get the lease extension process started. I don't know enough of the practicalities to be sure what advice you will be given, but I think the normal thing is for the vendor to send the freeholder a notice that kick-starts the process to acquire the freehold. They can then assign the rights that notice establishes to you. It's a question of a few letter back and forth. That means there is no 2 year waiting period before you can engage the statutory process. I don't think it stops you negotiating for an informal process with the freeholder in parallel, so the likelihood is you never need it, but it cuts the waiting time and establishes to the freeholder that any informal offer will have to 'compete' with what you could achieve at Tribunal.

As for your specific questions

1. It depends entirely upon the lease, so read it. Typically however, in a leasehold house you would be able to do most thing you suggest without impediment. An extension, significant internal works to the structure or large outbuilding, that's another question, but it's often still possible without permission. Even if you are required to have permission, it is 'not to be withheld unreasonably.', so normally you are just looking at paying some fees to get a stamp of approval, perhaps a survey. At worst, a trip to Tribunal.

2. You will need to get a legal team involved. There is a freehold title that will need to be sold and transferred, so it's a property transaction like any other. Informal just means that you don't go through the statutory process at Tribunal to establish a price.

Thanks again for another comprehensive reply.

I have a Register View of a property which is a typical leasehold in my area of interest which states the following:

This register describes the land and estate comprised in the title. Except as mentioned below, the title includes any legal easements granted by the registered lease but is subject to any rights that it reserves, so far as those easements and rights exist and benefit or affect the registered land.

1 The Leasehold land shown edged with red on the plan of the above Title filed at the Registry and being <address removed>

2 The mines and minerals are excepted.

3 Short particulars of the lease(s) (or under-lease(s)) under which the land is held:
Date : 5 January 1951
Term : 800 years from 5 October 1950
Rent : £5
Parties : <removed>

4 Unless otherwise mentioned the title includes any legal easements granted by the registered lease(s) but is subject to any rights that it reserves, so far as those easements and rights exist and benefit or affect the registered land.

So I am reading into that as of today there is 730 years left of the lease at £5 a year with no increase in ground rent and there are no restrictions to what I can do within the four walls. This also hopefully menas I have a very good chance of obtaining the freehold informally or fomally after 2 years. Am I correct?