Headlease between Freehold and Underlease

gladhand24

In the process of buying a property (Victorian terrace) - it is freehold and leasehold - we are buying both, but there is a headlease in between them which someone else (not the seller) owns. Does the fact we are buying the freehold take precedence in terms of any right the person who owns the headlease might have?
Our conveyancer isn't being much (any) help.
Thanks!

Robroy79

I don't believe so - important thing is to find out who the freeholder is and approach them.

My understanding is that you would need to consider this as two property transactions (with two TR1s); one for the leasehold interest and one for the freehold. If it's a house then the freeholder may wish to get rid as I can't imagine they make a lot of money on it and just gives them obligations. 

Some good reading;

https://www.moneysavingexpert.com/mortgages/buy-freehold-right-to-manage/#:~:text=Legislation has made it easier,for a fair market price.

gladhand24

Thanks - the seller owns both freehold and leasehold and we buying both from him. 

The headlease between the two is owned by someone else, and our conveyancer says this is problematic, but we aren't sure how if we will own the freehold? 

Robroy79

Must say I've not come across that before - what is the interest of the owner of the headlease?

Logically it can be structured that way since the headlease can be owned by an intermediary (but one who doesn't have the interest that a freeholder does). Being the freeholder too should mean that it's off little value for the intermediate landlord to retain the headlease but if there are provisions in the headlease then it leaves them with a commercial opportunity (simply put - to rake in some money from leaseholders but then obliged under their turns with the freeholder). Sounds like a proper solicitor one this!

eddddy

gladhand24 said:

Thanks - the seller owns both freehold and leasehold and we buying both from him. 

The headlease between the two is owned by someone else, and our conveyancer says this is problematic, but we aren't sure how if we will own the freehold? 

How long is the headlease and your underlease?


Until the headlease ends, you will still be an "ordinary" leaseholder. The headleaseholder will be your landlord. You might have to pay ground rent to the headleaseholder, and you might have to get consent for alterations etc (check the lease for details).


But once the headlease ends, you will essentially own the full freehold of the property.

gladhand24

Thank you.

Headlease is 800 years from 1909 and underlease 800 years from 1960. 

So even though we are buying the freehold, the headleaseholder will be our landlord? 

AdrianC

gladhand24 said:

Headlease is 800 years from 1909 and underlease 800 years from 1960. 

So even though we are buying the freehold, the headleaseholder will be our landlord? 

Yes. And you, in turn, theirs.

The freeholder owns the land.
The headlease then has certain rights granted by the freeholder over that land for 800 years from 1909.
The underlease than has certain rights granted by the headlease holder over that land for 800 years from 1960.

(No, I do not know what will happen between 2709 and 2760 in terms of responsibilities - but I doubt that will be your problem)

You will own either end of that sandwich. But, crucially, not the middle of it.

It is entirely likely that in the 112 years since the headlease was granted, the leaseholder has expired... The headlease is just like any other tangible land asset - it can be bequeathed or sold or transferred via any other reason. You may well know who owned it in 1909 - and probably even 1960. But even that was 61 years ago.

You have no idea who owns it now. You have no idea if the owner has any idea they own it.

In practice, they probably neither know nor care. It's a bit of an albatross. The headlease holder will owe the freeholder ground rent, and the underlease holder will owe the headlease holder ground rent. It's quite likely to be peppercorn...

But, when it comes to mortgage lenders, they like things to be neat and tidy, for obvious reasons... Will they accept an indemnity?

princeofpounds

Agree with AdrianC's comments (amongst others). I started to write this but got held up and have only just got back to finish it, so apologies for any repetition of what has already been stated.

No, the freeholder does not get 'precedence' over the headlease. Like any lease, there will be a deed (contract) that will specify rights and obligations on both sides. That is still fully in existence, although many and possibly all of its terms will no longer be of any practical relevance. For example, the head leaseholder may have effectively sold all the rights and transferred all the obligations the headlease gives them to the underlease, leaving nothing to do on a net basis. The head leaseholder may not even know or care that they own it.

But you will want to have very clear understanding of the terms, as it is possible that some still have relevance and could be important for you. In particular the headlease may establish some obligations towards third parties.

It's an unusual situation for houses (much more common for flats where it often has a more genuine purpose) but you do hear of it now and again. It's usually in place for various historical reasons connected with how land deals on the site have been conducted in the past.

For example, a council may have refused to sell freehold interest in the past as a point of policy, but sold leasehold to a developer. The developer may have wanted to put covenants or ground rent in on sale, but can't adjust the terms of their own lease, so they create a new underlease with the terms they want and sell that on. Then at some point the council realises the freehold has no value, changes its policy and offers it to the underlease holders for a small sum. Just an example, not saying this has anything to do with your situation.

You may well have the right to buy the headlease in your position as underlease holder, which would tidy everything up but probably cost a few grand in legal fees and the actual purchase. One thing to check would be your eligibility to do that.

LAS mention it briefly in this article, but you can arrange to call them to discuss in more detail (they are a govt-funded advice service). https://www.lease-advice.org/advice-guide/houses-qualification-valuation/

It's a shame your conveyancer is not guiding you through this more closely.

gladhand24

Thanks so much everyone, this is really helpful! Very much appreciated 

Any ideas about what the risk is to us in real terms if we complete with the situation as is i.e. buying the freehold and leasehold but not the headlease. I appreciate we don't know the exact terms of the headlease. On the Land Registry it says it is owned by former neighbours of the property who moved away many years ago. 

gladhand24

(Also,re the point about mortgage lenders, we are cash buyers)

davidmcn

gladhand24 said:

Any ideas about what the risk is to us in real terms if we complete with the situation as is. I appreciate we don't know the exact terms of the headlease.

It would be very risky to complete without reading and understanding it!

(and no, we don't know the risk because we haven't seen it either)