Collective enfranchisement question

tom741

Hey

im in the process of buying an apartment in a 3 floor building. The 3rd floor (where the apartment I want to buy is) did a collective enfranchisement and bought the lease of the floor and have 900 years and ground rent of 250£.

but there is still the lease of the building, for 125 years with escalating ground rent. The 3 rd floor are saying that they only pay the headlease of the their floor. My solicitor is saying this is an issue even if they don’t pay in practice..

I don’t really understand how it works. Which lease is ‘stronger’ the building lease or the head lease. So the seller solicitor is saying there is no problem but my solicitor is saying there is a problem since there is no official document saying they are not paying the building lease... and also what will happen in 125 years? Will the landlord get the 3rd floor back? Really confused here 

eddddy

You need to find out more about the structure of ownership.

As an example, it might be something like this:

• There is a freehold building
• There is headlease for a floor of the building (e.g. if there are 3 floors, there could be 3 headleases - one for each floor)
• There is a lease (or sublease) for each flat (e.g. each headlease might have 4 subleases)

You can think of it as being a bit like somebody rents a whole floor of a building (equivalent to a headlease), and then they rent out each flat on that floor individually (equivalent to a lease/sublease).

A sublease cannot be longer than a headlease. (e.g. I can't lease a floor of building for 100 years, and then sublease a flat on that floor to you for 200 years.)

Another example is:

• There is a freehold piece of land with 5 blocks of flats on it
• There is a headlease for each block
• Then there is a sublease for each floor of the block
• Then there is then a lease for each flat on a particular floor

If a 'proper' statutory collective enfranchisement has happened, the headlease would be 'wiped out' and no longer exist.

But perhaps the leaseholders didn't do that - they just bought the freehold. So they own the freehold, but the headlease still exists.

In that case, you can think of it a bit like this:

• the flat owners (Mr A, Mr B, Mr C and others) jointly own the freehold
• the flat owners rent a whole floor to somebody (Mr X)
• Mr X rents a flat to Mr A, another flat to Mr B and another Flat to Mr C

tom741

Thanks for the answer! 

So the fact that the 3rd floor have a lease for 900 years while the lease of the building is 125 years dosent make sense? So what is the point of doing it? What value the 3rd floor got by doing it? 

And also if they pay low ground rent while the rest of the building pay escalating ground rent will it affect to mortgage ability of the flat on the 3rd floor? (Lenders don’t like escalating ground rent)

me and my solicitor still waiting to get the headlease, but my solicitor don’t think we will find lots of answers there 

eddddy

tom741 said:

So the fact that the 3rd floor have a lease for 900 years while the lease of the building is 125 years dosent make sense? 

You'll have to explain more clearly what you mean - because what you seem to be saying isn't possible.


You mention "Collective Enfranchisement" - that's a legal term meaning "Buying the Freehold of a building". Is that what you mean, or do you mean something different?

If there was a "Collective Enfranchisement" the building wouldn't have a 125 year lease, it would be freehold.

tom741

eddddy said:

tom741 said:

So the fact that the 3rd floor have a lease for 900 years while the lease of the building is 125 years dosent make sense? 

You'll have to explain more clearly what you mean - because what you seem to be saying isn't possible.


You mention "Collective Enfranchisement" - that's a legal term meaning "Buying the Freehold of a building". Is that what you mean, or do you mean something different?

If there was a "Collective Enfranchisement" the building wouldn't have a 125 year lease, it would be freehold.

What they did is to buy the lease of the 3rd floor and make themselves the head lease with 200£ ground rent for 900 years

at the same time there is still the lease for the 1&2 floor with escalating ground rent and 125 years.

so my solicitor is saying the lender will care about the building lease even though they don’t pay it in practice...

tom741

So im not what value does it give to have a lease of 900 for the 3rd floor if the building one is for 125, and also not sure what the ground rent means here? Why they pay less and it doesn’t count for the lender?

eddddy

So where did the reference to "Collective Enfranchisement" come from?

Did your solicitor send you a letter about this? Can you copy exactly what the solicitor said in the letter?

Unfortunately, your explanation still isn't very clear.

tom741

eddddy said:

So where did the reference to "Collective Enfranchisement" come from?

Did your solicitor send you a letter about this? Can you copy exactly what the solicitor said in the letter?

Unfortunately, your explanation still isn't very clear.

Maybe this will be more clear for you, I didn’t really get it

Just briefly, the “headlease” is the 999 year lease held by the company in respect of the third floor and airspace.  The freehold title to the whole building is the interest above the headlease.  It is out of the headlease that the lease of the flats were granted.  At the time the lease of the Flat was granted, the headlease was owned by a different company and only later was bought by the company set up by the leaseholders of the flats.  While you will have a share in the freehold company, and therefore indirectly own the headlease with the other leaseholders/shareholders, it is the terms of the lease of the flat that will dictate how you own and can use and occupy the flat itself.  (Indeed, the lease of the flat contains an obligation on the leaseholder to comply with the tenant’s covenants contained in the headlease, insofar as the landlord is not required to under the lease, so – in a sense – you have more obligations than just those set out in the lease.

eddddy

Yes - that's much clearer.

It explains why the flat owners on the 3rd floor have to follow different "rules" from the flat owners on the 1st and 2nd floor.

But that paragraph doesn't mention the issue with 125 vs 999 year lease, or the escalating ground rent.


However, my guess is that you're saying

• Your flat has a 125 year lease with an escalating ground rent (because it's under a headlease) 
• But the flats on the 1st and 2nd floors have 999 year leases with £250 ground rent (because they're not under that headlease)

If that's the case, you just have to accept that the flat you're buying has a 125 year lease with an escalating ground rent - and your mortgage lender might not be happy with that.

(Or you can see if the freeholders will agree to change your lease - but they might not agree, and it would mean a lot of legal fees.)

tom741

eddddy said:

Yes - that's much clearer.

It explains why the flat owners on the 3rd floor have to follow different "rules" from the flat owners on the 1st and 2nd floor.

But that paragraph doesn't mention the issue with 125 vs 999 year lease, or the escalating ground rent.


However, my guess is that you're saying

• Your flat has a 125 year lease with an escalating ground rent (because it's under a headlease) 
• But the flats on the 1st and 2nd floors have 999 year leases with £250 ground rent (because they're not under that headlease)

If that's the case, you just have to accept that the flat you're buying has a 125 year lease with an escalating ground rent - and your mortgage lender might not be happy with that.

(Or you can see if the freeholders will agree to change your lease - but they might not agree, and it would mean a lot of legal fees.)

Thanks for the answer!

it’s the opposite- the 3rd floor which I want to buy has 999 years and 250£ fix ground rent

the 1&2 floors has the ground rent issue

but the solicitor is saying that the 3rd flood has legal responsibility for the lease and even if they don’t pay it in practice they are still legally connected to it.

this is the part I don’t get. And also the seller solicitor don’t understand 

And she wants to report this to the lender and ask if indemnity insurance will be ok with them

tom741

This is her answer for my question 

The fact that a lower rent is paid in practice does not remove this problem, albeit the risk of forfeiture is low on account of this and the fact that the landlord is a company in which you will own a share.