Share of freehold/neighbours

FataVerde

Hi,

I'm in the process of buying a share of freehold in London. The share of freehold is shared with just one other neighbour and I've heard both great and terrible experiences depending on how cooperative the neighbour is. I went by informally, knocked on the neighbour's door and asked if they'd like to speak. They politely refused, but did not seem particularly welcoming. I then received an email from the EA saying the vendor was upset i showed up unannounced because they had not told the neighbour they had accepted an offer. A lot of my plans regarding this flat (extension into the loft, etc) depend on the cooperation with the neighbour, I asked if the vendor could informally introduce us briefly in a doorstep meeting. The vendor refused (apparently it's premature and they'd only do this after exchange, which is useless of course). Any thoughts on the possible dangers with share of freeholds? I'm considering withdrawing. My offer was above the market price precisely because it's share of freehold, but this can easily turn into a trap. This flat has changed owners every 2 or 3 years in the past few decades while the other flat has been owned since the 1990s. 

anselld

You should hopefully be aware that extension into the loft wold depend on planning (flats dont have PD rights) and would not only require cooperation but probably money changing hands with your potential neighbour.  So there are several potential difficulties to overcome.  

If there is no cooperation even at the outset then it doesn't bode well.  There have been plenty of examples here but each case is different, they will not help you predict your own outcome.

bbat

It sounds like your having a lot of doubts already so perhaps this isnt quite the right one for you? If and extension into loft is a critical part of the plan, I dont know how you can be confident that this is possible in this situation (thinking of anselld comment above and also whether loft is even part of lease?). Would you still want the flat if you couldn't extend?  
That initial reaction from the neighbour really could have been simply that the knock on the door was unexpected. You dont know what had happened that day or what they were in the middle of when you knocked on the door. 

eddddy

One approach would have been to say at the very beginning that you were offering £x, subject to getting consent from the joint freeholders for a loft conversion.

Then it would be up to the seller to arrange consent with their neighbour.

But it would have alerted the seller and the neighbour to the development potential - so they might have wanted a better price.


What is the potential "profit" you would make from converting the loft (i.e. 'Increase in value of the flat' minus 'cost of conversion').

A savvy joint freeholder might expect you to pay them half of that "profit", if half of the loft belongs to them.

FataVerde

anselld, thank you for pointing that out. Yes, I know I need permission, but there are many houses on this road that converted their lofts so I suspect one can get planning permission. There are some roads in this neighbourhood that are conservation areas, but this is not one of them. I just meant that the difference between leasehold and share of freehold is that you no longer have to obtain the permissions of a (usually absentee) freeholder on top of everything else. That leaves you with the co-owner of the freehold. People who have similar share of freehold arrangements in the area pointed out it's not in any neighbour's interest to block your plans because you could then do the same when they need changes repairs or even selling their home.

FataVerde

eddddy such a helpful suggestion! This was actually my negotiating process. I first put a lower offer on the house based on the house sale history in the area, then the EA said it's worth more because it's share of freehold and I can add about 55,000 in value by extending into the loft so they won't sell below asking price. I then offered the asking price. The case has since moved to another EA in the company so I will remind them my offer was conditional on these aspects and ask for consent.

One quick question though: if the loft is demised to my flat in the lease (as the EA claimed), can the neighbour still ask for a share of profit? Or does the fact of having the loft demised to my flat not guarantee a right to extension?

eddddy said:

One approach would have been to say at the very beginning that you were offering £x, subject to getting consent from the joint freeholders for a loft conversion.

Then it would be up to the seller to arrange consent with their neighbour.

But it would have alerted the seller and the neighbour to the development potential - so they might have wanted a better price.


What is the potential "profit" you would make from converting the loft (i.e. 'Increase in value of the flat' minus 'cost of conversion').

A savvy joint freeholder might expect you to pay them half of that "profit", if half of the loft belongs to them.

JCarmello

If I was you, I'd ask. through your solicitor, if the vendors have ever requested consent for this type of work, or have knowledge of any previous occupants, requesting consent (and if so, the outcome)

NameUnavailable

Does the lease confirm that the loft space is demised to 'your' flat?

eddddy

FataVerde said:

One quick question though: if the loft is demised to my flat in the lease (as the EA claimed), can the neighbour still ask for a share of profit? Or does the fact of having the loft demised to my flat not guarantee a right to extension?

If the loft is demised to you - then you don't have to pay a premium to the joint freeholder for altering it

But if the roof itself belongs to the freeholder, and you want to cut holes in it to make windows, etc - the joint freeholder can ask for a premium or refuse consent.


You also need to read the lease to see what it says about alterations. Usually they say you need the freeholder's consent, but consent cannot be unreasonably withheld.

And they'll be legal costs etc for getting the leases updated.

AlexMac

FataVerde said:

One quick question though: if the loft is demised to my flat in the lease (as the EA claimed), can the neighbour still ask for a share of profit? Or does the fact of having the loft demised to my flat not guarantee a right to extension?

That is surely a Q for your solicitor. 

As a total amateur, I'd guess that if you really do own it, you can do what you like with it, within the usual constraints of Permitted Development and with Building Regs Approval, which I'm sure you've already researched via the Planning Portal.

However, you cannot - indeed, must not - trust whatever the "EA claimed".

The lease and possibly the Freehold Company Memorandum and Articles of Association should clarify this (the Mem & Arts are the Constitution of the Freehold Company, assuming the Freehold is owned by a  Registered Limited Company as is usual).   

Your solicitor will ask for these documents as part of seeking the usual responses to the LPE; Leasehold Property Enquiries forms which they'll send to the sellers' Solicitor at an early stage. She or he will interpret these to clarify exactly what you're buying, detail of how the Company operates / how any voting works. service charge arrangements for shared expenses or maintenance and whether both you and the downstairs leaseholders are Co-Directors or Members of the Freehold Company.   But rather than waiting for their usual comprehensive Report including all this and the Search results near the end of the work they do for you, I assume you'll ask for an early advice on this one key point?

 

In fact, assuming the Freehold is owned by a  Registered Limited Company as is usual, you may even be able to download the Mem&Arts from the entry at Companies House?   
Either way, I'd worry if the lease is silent on any of this stuff, as competent leases spell out exactly which areas are shared and who is responsible for things which are usually joint - such as roof repairs, external decor, gutters, sewers, loft tanks if any, damp, etc.

That's the legal bit, but, speaking from experience of being a shared freeholder of three flats in the past, I'm aware of the need to maintain good relations.  I'm also slightly surprised at the claim that the loft will be demised with the upper flat.  That wasn't the case in any of the three conversion flats we owned, although they were larger units, typically of 6 flats, so maybe everything was a bit more formal.  Even where loft spaces were only accessible from the top floor flat, they were still regarded as communal; we even chipped in to the bloke upstairs' loft insulation by that logic!  

So ask yer solicitor; that's what you're paying her for.  And even if you can do it without approval of payment, be appreciative that them downstairs may resent the noise and nuisance of building work above their home!

Good luck untangling it.  I assume it's worth doing if the  loft extension (at £20-30k?) adds more value than it costs? 

pretamang

if you can't talk directly to the other freeholder before purchase (and I don't blame them for politely refusing - I'd be wary about sharing details of my house & lease informally to what is effectively a stranger) I would ask the seller (through your solicitor) for details and copy paperwork of previous maintenance for the past 10 years.

If the share of freehold is working well and they collaborate on these things this paperwork should be readily to hand Even if your vendor has only been there 2/3 years they should have asked for the same and hold it to pass on. Can they demonstrate they've taken their responsibilities seriously and kept up with maintenance?