Freehold flat with a short lease

eddddy

NameUnavailable said:

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.

In legal terms, extending a Lease is treated as a surrender of the lease and re-grant of the lease.

You can't grant a lease to yourself - so I guess that's the issue. You can't re-grant a lease to yourself.

(There might be other ways of getting around it - like selling the freehold first, extending the lease, then selling the lease. But I'm not sure that's any simpler.)

Norman_Castle

OP, do you know how long the lease is on the second flat? If thats running down wouldn't that increase the value of the freehold?

JaneHop

eddddy said:

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".

Eddddy, this makes so much sense now, thank you! We're aware of limited options of lenders for freehold flats, we've already applied to one but clearly we don't even need to limit ourselves and could select whichever lender, bearing in mind extending the lease. I'm just frustrated it has not been explained to us by the experts whom we pay, we need to seek for help online to get some clarity on matters. Not even mentioning the estate agent...

I'll propose the freehold purchase / leasehold purchase + extension to our solicitor and we'll see what she says..

Jaybee_16

I used to live in a 1920 house which had two flats, ground and first floor. I owned the leasehold to my ground floor flat and freehold to both flats. 

When I wanted to sell my leasehold flat I needed to extend the lease. Spoke to the EA and my solicitor who both said I needed to extend the lease prior to selling but couldn't renew my own lease. 

I added a very good friend to the freehold, renewed the lease to 999 years, then removed the friend from the freehold. Obvious additional legal costs but apparently unavoidable. 

eddddy

Jaybee_16 said:

I added a very good friend to the freehold, renewed the lease to 999 years, then removed the friend from the freehold. Obvious additional legal costs but apparently unavoidable. 

Yep - that would work as well.

So two of you jointly owned the freehold, but just one of you owned the leasehold - so the lease extension was possible.

The OP could try persuading the seller to add a 'very trusted friend' to the freehold - but it would get super messy if the 'very trusted friend' then decided they didn't want to sign the lease extension documents, or didn't want to sell the freehold, etc.

JaneHop

Norman_Castle said:

OP, do you know how long the lease is on the second flat? If thats running down wouldn't that increase the value of the freehold?

It's 90 years

JaneHop

Jaybee_16 said:

I used to live in a 1920 house which had two flats, ground and first floor. I owned the leasehold to my ground floor flat and freehold to both flats. 

When I wanted to sell my leasehold flat I needed to extend the lease. Spoke to the EA and my solicitor who both said I needed to extend the lease prior to selling but couldn't renew my own lease. 

I added a very good friend to the freehold, renewed the lease to 999 years, then removed the friend from the freehold. Obvious additional legal costs but apparently unavoidable. 

Thank you! We'll try suggesting that too.

KiKi

OP, your conveyancer sounds rubbish.  If they're not explaining this stuff to you which is really fairly basic with purchasing a leasehold flat / freehold of a building, what else are they not picking up on?!  If they didn't even understand this - let alone offer you options - I'd be looking elsewhere for someone to do the legal work.

NameUnavailable

What about forming a Ltd company and putting the freehold in the company's name. Would that allow one to extend their lease (as the freehold is owned by the Ltd entity).

JaneHop

KiKi said:

OP, your conveyancer sounds rubbish.  If they're not explaining this stuff to you which is really fairly basic with purchasing a leasehold flat / freehold of a building, what else are they not picking up on?!  If they didn't even understand this - let alone offer you options - I'd be looking elsewhere for someone to do the legal work.

I know, it is really frustrating. Now that I can finally understand the situation I can see it is pretty basic. But our conveyancer is like 'the vendor doesn't want to deal with the lease. How would you like me to proceed?' I was expecting a little bit more help than that from their side. And the EA... she is still going to argue it is a freehold flat...