Share of Freehold Drama

Addison89

Hi Everyone. I would like to ask for advice. Me and my partner have had our offer accepted on a coverted flat, 3 months ago. The property is chain free, empty and a share of freehold (there are 3 flats in the building). We have asked whether there is a management company in the beginning of the process and received conflicting information but as our mortgage offer was confirmed by the lender, we didn’t really bother, what a mistake.

In a nutshell, solicitors have been incredibly slow, especially the vendor’s and after 3 months of waiting, they emailed our solicitor stating they cannot provide a management pack as there is no management company in place. Our solicitor then asked for relevant documents (she shouldn’t need to ask this though, as the vendor’s solicitor must know what is needed for the sale!!) EA says Management company has been dissolved, but According to the Companies House, there is one but it’s dormant. 

I am very confused why they haven’t informed us properly before.

My question is, is it risky to buy the flat if there is no management company? Can the lender withdraw their offer at this stage due to this? 

And finally, I did not see our vendor’s name on the Company House page under the Management Company officers, only the other two flat owners. Is it possible he is not a shareholder in the company?

many thanks

george4064

You need to ascertain how the property as a whole is managed, if there is no mgmt company then there must be some info, no matter how basic it might be.

Have you seen the HM Land Registry title that shows the three flat owners as tenants in common for the property? If its not structured as tenants in common, then it should be held in trust with a 1/3rd each. A TR1 form is whats required to transfer ownership of the proportion of the property that is one of the flats, you can Google TR1 form to see what it looks like.

In the absence of a mgmt company, you should be asking for a LPE1 form to be completed by the existing co-freeholders which has lots of questions that would be answered by a mgmt pack. Do you know if a LPE1 form has been completed? Or if your solicitor has even requested one?

Typically, it’s up to the buyer (and their solicitor) to request the information they need. It’s not up the sellers solicitor to voluntarily send you everything because that list could potentially be endless!

Addison89

george4064 said:

In the absence of a mgmt company, you should be asking for a LPE1 form to be completed by the existing co-freeholders which has lots of questions that would be answered by a mgmt pack. Do you know if a LPE1 form has been completed? 

Thanks for your reply! She did ask for LPE1 yes. 

Re Land Registry, it does state that the land is owned by the management company. My only concern is that the vendor/EA keep saying there is no management company when in fact there is.

Can the mortgage lender decide not to release funds due to conflicting information about the management company?

george4064

Addison89 said:

george4064 said:

In the absence of a mgmt company, you should be asking for a LPE1 form to be completed by the existing co-freeholders which has lots of questions that would be answered by a mgmt pack. Do you know if a LPE1 form has been completed? 

Thanks for your reply! She did ask for LPE1 yes. 

Re Land Registry, it does state that the land is owned by the management company. My only concern is that the vendor/EA keep saying there is no management company when in fact there is.

Can the mortgage lender decide not to release funds due to conflicting information about the management company?

Completed LPE1 form should confirm the arrangements, what does it say there? Is there a management company or not?

Are they any costs you are liable to contribute towards? Sinking fund? How are repair works paid for?

If you have purchased the official title of the property from HM Land Registry and it’s owned by a management company, then you have your answer there. You should make sure you are satisfied with the responses before proceeding.

Your mortgage company can decide to not release funds on any bit of information they don’t like, and this could potentially be one of those. You can’t be sure, but it would be very risky and simply rather silly to buy a flat without knowing the arrangements with regard to the management of the property (whether it’s managed via a mgmt company or simply managed individually between the co-freeholders).

Sistergold

Dear OP, you should thank your lucky stars that you got a glimpse of how difficult it is going to be to find out who is responsible for what in this property? Imagine if you had bought and the roof starts leaking or something, how on earth are you going to find who is to organise the repair? If I were you I would pull out at this point as it’s already a disorganised setup, one day when you have a problem needing collective repairs or you want to sell you will be so stuck and so stressed trying to find who is to do what.  

eddddy

Are you confusing 2 different types of company?

• 1) A management company - that is hired to manage the building. For example, arranges buildings insurance, arranges maintenance and repairs, collects service charges etc.

• 2) A Company which owns the building freehold (which might be dormant). And the 3 leaseholders each own equal shares in that company

Either or both types of company could exist (or one company could do both things).

In this case, your post suggests that there is no management company (type 1 above), but there is a company that own the freehold (type 2 above).


So one of your questions would be "How is the building managed?". i.e. how is insurance, maintenance, repairs arranged?


It may be that it's done informally and as needed... for example...

• The insurance renewal arrives for £750, so you all agree to chip in £250 each
• The roof leaks, so somebody gets a repair quote from a roofer for £1200 - so you all agree to chip in £400 each

But the fact that nobody is prepared to take responsibility for filling in an LPE1 form, suggests that they are disinterested (or naive or lazy) in being joint freeholders. So perhaps they will be disinterested in managing the building as well.

So every time an insurance bill needs to be paid or a repair needs to be arranged - it will be a fight to get anyone to get involved and/or pay up.


This is often a big problem with 'Share of Freehold' properties.

pretamang

eddddy said:

Are you confusing 2 different types of company?

• 1) A management company - that is hired to manage the building. For example, arranges buildings insurance, arranges maintenance and repairs, collects service charges etc.

• 2) A Company which owns the building freehold (which might be dormant). And the 3 leaseholders each own equal shares in that company

Either or both types of company could exist (or one company could do both things).

In this case, your post suggests that there is no management company (type 1 above), but there is a company that own the freehold (type 2 above).


So one of your questions would be "How is the building managed?". i.e. how is insurance, maintenance, repairs arranged?


It may be that it's done informally and as needed... for example...

• The insurance renewal arrives for £750, so you all agree to chip in £250 each
• The roof leaks, so somebody gets a repair quote from a roofer for £1200 - so you all agree to chip in £400 each

But the fact that nobody is prepared to take responsibility for filling in an LPE1 form, suggests that they are disinterested (or naive or lazy) in being joint freeholders. So perhaps they will be disinterested in managing the building as well.

So every time an insurance bill needs to be paid or a repair needs to be arranged - it will be a fight to get anyone to get involved and/or pay up.


This is often a big problem with 'Share of Freehold' properties.

this is great advice and spot on.

sounds like the 'management company' is an informal arrangement between the three owners.

pros: no extra admin costs like filing accounts, has flexibility for the three of you to collectively make decisions. i.e. no set rules on how often to decorate the shared areas or exterior

cons: what if you don't get on with them or don't agree, could get messy. One party could refuse to contribute to repairs.

I lived in a flat with an informal arrangement, no mgmt co - it worked great for us as everyone was keen address repairs and had their own savings set aside in case they were needed (most of the other owners were landlords and took their responsibilities of building upkeep v. seriously)

you need to ask questions about how it currently works: how much communication does the seller have with the others, do they live there or rent out, ask for details of all repairs made in the last 5 or 10 years and how those decisions were made.

Addison89

Thanks everyone, some really good advice. We are waiting for them to complete an LPE1 form - for now we don’t know how repairs were arranged or even if there is a building insurance. On paper there is a company that owns the freehold with equal shares and the company is dormant. I agree about pros and cons, you save money but depending on the other owners it can become a headache.

Does anyone know if the vendor’s name should be on the company house website under the company? As we can’t see this.

Vendor’s solicitor told our solicitor to call the neighbours if they need any information about how things managed in the building, this was very odd. It does raise some concerns about the vendor/their solicitors.

pieroabcd

pretamang said:

this is great advice and spot on.

sounds like the 'management company' is an informal arrangement between the three owners.

pros: no extra admin costs like filing accounts, has flexibility for the three of you to collectively make decisions. i.e. no set rules on how often to decorate the shared areas or exterior

cons: what if you don't get on with them or don't agree, could get messy. One party could refuse to contribute to repairs.

I lived in a flat with an informal arrangement, no mgmt co - it worked great for us as everyone was keen address repairs and had their own savings set aside in case they were needed (most of the other owners were landlords and took their responsibilities of building upkeep v. seriously)

you need to ask questions about how it currently works: how much communication does the seller have with the others, do they live there or rent out, ask for details of all repairs made in the last 5 or 10 years and how those decisions were made.

Out of curiosity, in these cases what does the law say about urgent works that need to be done, for example to guarantee the structural integrity of the building or to repair a leaking roof?
Can one of the owners appoint a company to do the necessary reparations and a later stage force the other co-owners to pay their share? Or is it all entirely up to the good will of the co-owners?

NameUnavailable

pieroabcd said:

pretamang said:

this is great advice and spot on.

sounds like the 'management company' is an informal arrangement between the three owners.

pros: no extra admin costs like filing accounts, has flexibility for the three of you to collectively make decisions. i.e. no set rules on how often to decorate the shared areas or exterior

cons: what if you don't get on with them or don't agree, could get messy. One party could refuse to contribute to repairs.

I lived in a flat with an informal arrangement, no mgmt co - it worked great for us as everyone was keen address repairs and had their own savings set aside in case they were needed (most of the other owners were landlords and took their responsibilities of building upkeep v. seriously)

you need to ask questions about how it currently works: how much communication does the seller have with the others, do they live there or rent out, ask for details of all repairs made in the last 5 or 10 years and how those decisions were made.

Out of curiosity, in these cases what does the law say about urgent works that need to be done, for example to guarantee the structural integrity of the building or to repair a leaking roof?
Can one of the owners appoint a company to do the necessary reparations and a later stage force the other co-owners to pay their share? Or is it all entirely up to the good will of the co-owners?

Same as any other leasehold property - it will be in the lease as to what the responsibilities are. The freeholder is usually responsible for carrying out the work, unless there is a RTM company, but that's obviously not relevant with a shared freehold.

As a leaseholder, if the freeholder fails to carry out the necessary works you can take the case to tribunal to enforce the terms of the lease.