Help! Flat advertised as leasehold, turns out to be freehold

jembear

Hiya, we are FTB and had an offer accepted on a flat 6 months ago. The flat is a victorian property that was converted into 2 flats in 1989. We were told the ground floor flat we are buying is a leasehold. All documentation we have had so far also states the property is a leasehold. Our solicitor has just found out that our flat is actually a freehold and this is now likely to cause us problems - our lender might not agree to lend. We love this flat so much and feel devestated to think that we have wasted 6 months waiting to get to this point and could now lose the flat altogether. I have checked the land registry and it does state that the ground floor flat is a freehold and the top for flat is leasehold. Does anyone have any advice on what to do? We really dont want to lose this flat. 
We are only in a position to buy as we are using the 95% mortgage scheme so do not have a great deal of extra funds
Appreciate any advice on this

Thanks so much

AdrianC

Flats are leasehold.

But... there is also a freehold for the entire building. Sounds as if you're getting that along with your leasehold flat - you are buying two things. One you knew you were getting, a leasehold flat; one you didn't, the freehold for the building.

Remember, as a leaseholder, you have to pay a share of building maintenance costs. In a two-flat building, that's likely to be half.

The freeholder - whether you, your neighbour, or somebody else entirely - will arrange and manage that work and collect the cost.

Most people would view owning the freehold as a good thing, not bad. It is massively unlikely to cause an issue with the lender.

gwynlas

This should not create a problem. As it is a conversion the ground floor flat owns the entire freehold of the building and you can grant yourself a lease. Discuss situation with your solicitor you could offer to sell your upstairs neighbour half the freehold at market rates, you are also in the position to charge for a lease extension if they need one. What is important is clarity about the freeholder insuing the building and how repairs and maintainance costs are managed.

user1977

AdrianC said:

Flats are leasehold.

But... there is also a freehold for the entire building. Sounds as if you're getting that along with your leasehold flat - you are buying two things

No, it sounds more like the vendor owns the freehold, minus the leasehold interest of the other flat. Not sure why lenders have a problem with that, but it's come up here before. 

jembear

AdrianC said:

Flats are leasehold.

But... there is also a freehold for the entire building. Sounds as if you're getting that along with your leasehold flat - you are buying two things. One you knew you were getting, a leasehold flat; one you didn't, the freehold for the building.

Remember, as a leaseholder, you have to pay a share of building maintenance costs. In a two-flat building, that's likely to be half.

The freeholder - whether you, your neighbour, or somebody else entirely - will arrange and manage that work and collect the cost.

Most people would view owning the freehold as a good thing, not bad. It is massively unlikely to cause an issue with the lender.

Thank you. Should i be requesting some kind of paperwork regarding confirmation of the lease from the estate agent? From what our solicitor has said, i'm worried the lender will just see "freehold" and refuse to lend. I have no idea what im doing 🤔

user1977

jembear said:

AdrianC said:

Flats are leasehold.

But... there is also a freehold for the entire building. Sounds as if you're getting that along with your leasehold flat - you are buying two things. One you knew you were getting, a leasehold flat; one you didn't, the freehold for the building.

Remember, as a leaseholder, you have to pay a share of building maintenance costs. In a two-flat building, that's likely to be half.

The freeholder - whether you, your neighbour, or somebody else entirely - will arrange and manage that work and collect the cost.

Most people would view owning the freehold as a good thing, not bad. It is massively unlikely to cause an issue with the lender.

 Should i be requesting some kind of paperwork regarding confirmation of the lease from the estate agent? 

No, the estate agent is unlikely to have a clue. You rely on the advice from your solicitor. 

jembear

gwynlas said:

This should not create a problem. As it is a conversion the ground floor flat owns the entire freehold of the building and you can grant yourself a lease. Discuss situation with your solicitor you could offer to sell your upstairs neighbour half the freehold at market rates, you are also in the position to charge for a lease extension if they need one. What is important is clarity about the freeholder insuing the building and how repairs and maintainance costs are managed.

Thanks. Is it costly to grant myself a lease do you know? 

NameUnavailable

Owning the freehold is a good thing, and should make the purchase more secure for a lender. Not sure why your solicitor is raising this as a problem.

Slithery

NameUnavailable said:

Owning the freehold is a good thing, and should make the purchase more secure for a lender. Not sure why your solicitor is raising this as a problem.

Because mortgage companies don't lend on freehold flats that don't have a lease.

user1977

Slithery said:

NameUnavailable said:

Owning the freehold is a good thing, and should make the purchase more secure for a lender. Not sure why your solicitor is raising this as a problem.

Because mortgage companies don't lend on freehold flats that don't have a lease.

For chapter and verse on the default criteria most lenders work to, see here:

https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/#C9108

eddddy

As others say, you could regularise things by buying the freehold in a company name, and granting yourself a lease starting on the completion date. That should satisfy the mortgage lender - and remove this problem when you come to sell. But I suspect your solicitor would charge fees of £1k to £2k to do this.

But you'd be taking on the responsibilities of a freeholder / landlord - like insuring the building, arranging repairs and maintenance, granting consents etc.


If the first-floor leaseholder is reasonable and cooperative, you might be able to do everything informally - which will make life much easier.

But if the first-floor leaseholder is difficult - you might need a crash course in leasehold legislation to understand your rights and responsibilities.... reasonableness of service charges and admin fees, valid demands for payment, keeping accounts, section 20 consultations, serving notices, taking legal action if the leaseholder breaches the lease, etc.

In those circumstances, you might decide to hire a managing agent. The downside of that is you'll probably have to pay 50% of their fees.