Freehold flat with a short lease

JaneHop

Hi, we're in a process of buying a ground floor flat which owns the freehold of the building + a leasehold, whilst the first floor flat only is a leasehold. First concern of our conveyancer is the freehold situation which appareantly is unusual, and the other thing is that the leashold on this flat is less than 50 years. Initial idea was that the Owner will extend the lease herself and all is going to be ok. However later in the process, her solicitor said that the Owner being also the freeholder cannot grant a lease extension from herself to herself and that eventually the lease will expire and will automaticlally revert back to the freeholder and she doesn't seem to think it's an issue.

Now, please help me understand all of this. Is the short lease a huge problem since we'll be the freeholders anyway? Who extends the lease? Do we even need a lease?

I'd appreciate your help!

Norman_Castle

No idea what the answer is however its unlikely you will remain the owner of the property for 50 years so when you sell the situation will re appear. Is ownership of both the freehold and leasehold the reason its been allowed to get to 50 years? Did the current owner buy it in the way you would or did she buy the freehold and leasehold at separate times?

JaneHop

Hi Norman_Castle, unfortunately I have no idea why the owner has let the lease to get to 50 years and how did she buy the flat. On the other hand, if she can't grant herself a lease extension becuase she owns both lease and freehold (perhaps that's why it is 50 now?), who does it then? I'm finding it hard to understand, but having done my little research I think it is actually good that there is a leasehold on this flat (rather than freehold alone), but how do we extend it and do we need to extend it? (I'm guessing we do).

eddddy

JaneHop said:

her solicitor said that the Owner being also the freeholder cannot grant a lease extension from herself to herself and that eventually the lease will expire and will automaticlally revert back to the freeholder and she doesn't seem to think it's an issue.

Who doesn't think it will be an issue - the owner or their solicitor? Their solicitor should know better than that.

If you're buying with a mortgage, the lease will almost certainly need to be extended - 50 years will be unacceptable to the mortgage lender, even if you own the freehold.


But this doesn't sound insurmountable. You say "We're buying" - so I assume there's 2 of you.  So one solution could be:

• The Freehold building is sold/transferred to just one of you. The freehold is probably worth very little - often £1k or £2k

• • (or you create a Limited company to own the freehold, with you both being directors)

• The leasehold flat is sold/transferred to both of you. (Assuming your plan is to be joint owners.)

• Your solicitor extends the flat's lease on completion - maybe to 999 years (so now the flat is mortgageable)

As you say, granting a lease extension to yourself isn't allowed, but granting a lease extension jointly to 'yourself plus somebody else' is.

You'll probably have a good chunk of extra legal costs. If the seller didn't explain the situation at the outset, maybe you can suggest that the seller contributes to your extra legal costs.

And if you're using a 'pure-play' conveyancing solicitor, they might refuse to get involved with lease extensions (so you might need a different solicitor).


Plus bear in mind that one of you will become a Freeholder (i.e. a Landlord) - which comes with a big chunk of responsibilities.

DE_612183

Hi, you said "we" could your partner hold the freehold and you the leasehold then your partner could extend? Don't know if thats possible!

diystarter7

The only problem I see is getting a mortgage. I'm guessing this is a conversion ie house into flats. Often a lease like that is just legal expenses and can cost from about 1 to 2k approx if that is the case which I think it is.

Yes, you do need a lease OP as its shared responsibly usually for the shared areas and the roof, building repairs etc.

JaneHop

Hi eddddy, it's the vendor's solicitor that thinks expiring lease isn't much of a problem. Almost like the lease is insignificant in their view, both agent and vendor's solicitor are very much focused on repeating 'it's a freehold flat!' without even mentioning the lease situation.

 

And yes, there's two of us me & my husband.

So I understand this as kind of two separate transactions? E.g. I pay 2K for freehold, and separately together with my husband we buy the leasehold with a mortage, telling the lender the lease is to be extented to 999 years?

Sounds like this idea makes sense and frankly I'm a bit surprised our solicitor hasn't proposed anything like this. Tbh, she hasn't proposed anything to resolve the issue.

JaneHop

DE_612183 said:

Hi, you said "we" could your partner hold the freehold and you the leasehold then your partner could extend? Don't know if thats possible!

I suppose the lease would need to be extended before/on completion rather than after becuase of the mortgage? But don't know, just thinking out loud!

eddddy

JaneHop said:

...agent and vendor's solicitor are very much focused on repeating 'it's a freehold flat!' without even mentioning the lease 

FWIW, you mustn't call it a freehold flat - it's not.

It's a leasehold flat, but one of you will own the freehold of the building.

If you ask a mortgage lender if they'll give a mortgage on a 'freehold flat', 90% of them will say "no".


To illustrate here's a list of mortgage lenders who were asked the question "Does the lender lend on freehold flats?". See how many of them answered "No"...
https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/1836/

NameUnavailable

eddddy said:

JaneHop said:

her solicitor said that the Owner being also the freeholder cannot grant a lease extension from herself to herself and that eventually the lease will expire and will automaticlally revert back to the freeholder and she doesn't seem to think it's an issue.

Who doesn't think it will be an issue - the owner or their solicitor? Their solicitor should know better than that.

If you're buying with a mortgage, the lease will almost certainly need to be extended - 50 years will be unacceptable to the mortgage lender, even if you own the freehold.


But this doesn't sound insurmountable. You say "We're buying" - so I assume there's 2 of you.  So one solution could be:

• The Freehold building is sold/transferred to just one of you. The freehold is probably worth very little - often £1k or £2k

• • (or you create a Limited company to own the freehold, with you both being directors)

• The leasehold flat is sold/transferred to both of you. (Assuming your plan is to be joint owners.)

• Your solicitor extends the flat's lease on completion - maybe to 999 years (so now the flat is mortgageable)

As you say, granting a lease extension to yourself isn't allowed, but granting a lease extension jointly to 'yourself plus somebody else' is.

You'll probably have a good chunk of extra legal costs. If the seller didn't explain the situation at the outset, maybe you can suggest that the seller contributes to your extra legal costs.

And if you're using a 'pure-play' conveyancing solicitor, they might refuse to get involved with lease extensions (so you might need a different solicitor).


Plus bear in mind that one of you will become a Freeholder (i.e. a Landlord) - which comes with a big chunk of responsibilities.

Out of interest, why can't the freeholder extend their own lease? Surely there's no issue as if there was a charge to be paid it would go to the freeholder, i.e. themselves.

eddddy

JaneHop said:

So I understand this as kind of two separate transactions? E.g. I pay 2K for freehold, and separately together with my husband we buy the leasehold with a mortage, telling the lender the lease is to be extented to 999 years?

Yep - I can't see why that wouldn't work.

It might be best to make it clear by saying "the lease will be extended on completion" - so they don't think you mean it will be extended sometime after completion.

Conceptually, all 3 things will happen 'at the same moment' on completion:

• You'll buy the freehold building
• You'll both buy the leasehold flat
• You'll have the lease extended

(So that's 3 legal jobs to pay for. Your current solicitor's quote might only be for buying the leasehold flat.)