Advice on complicated leasehold and freehold situation please!

NatNat77

A relative owns an upstairs flat, they used to own the flat below also but sold that a few years ago. It's a house separated into two flats and they own the freehold for both flats.

The flats have two different lease lengths, I'm not sure exactly how long but I know the upstairs is much shorter, almost unmortgageable.

The flat has been up for sale since September and the price reduced twice, with very little interest and no offers until today.

They have had an offer for 20k more than the original list price, but to include the sale of both freeholds.

The EA is obviously trying to get them to sign up to their conveyancer but I've advised them to use a local solicitor that specialises in freehold and leasehold sales, they're not confident with online processes anyway.

Now, we're a bit suspicious about this offer but the EA have told them they've completed their initial checks and the buyer is an investor. I'm not sure what questions they have asked but is there any reason not to accept and see where it goes, perhaps not doing too much conveyancing on their side at least until searches have been ordered etc, however it is also slightly complicated by the owner of downstairs wanting to buy their freehold and possibly the freehold for upstairs as well. My relative has been holding fire on this because if the upstairs didn't sell they'd keep the freeholds.

Do they have to allow the downstairs to buy the freehold for their flat, and upstairs freehold if they want, and if not, can they just accept the offer for the upstairs and freeholds without getting a valuation etc? They are happy with the offer and presumably the lease extension can be timed so that it is extended on the same day as completion, or at least after exchange?

Is there anything else they need to consider or do, particularly to safeguard their position please? They don't want to extend the lease and have the sale fall through.

Sorry it's a bit long, and I hope I've given all of the relevant information. 
Many thanks in advance for any assistance 😊

eddddy

I think you're a bit confused about what a 'freehold' is.

Based on what you say... 

• There is one freehold building
• There are 2 leasehold flats in that one freehold building

(There is no concept of a freehold for each flat.)

So I guess the investor wants to buy the leasehold upstairs flat, plus the freehold building.

Is there scope to convert the loft? That might be why the investor wants to buy the freehold of the building.

NatNat77

Sorry yes, I do get confused with the terminology. You're right of course.

And yes, I guess it's possible the loft could be converted but it is only a 1 bed with a small hallway if I remember rightly so I'm not sure if there'd be space for stairs. It would explain the offer at least though. Can they sell the freehold to this buyer do you know, or would the owner of downstairs have to have the right of first refusal, given they have expressed interest in buying? 

Jaybee_16

I think this is what you are asking

https://england.shelter.org.uk/professional_resources/legal/home_ownership/leasehold_and_commonhold/leaseholders_right_of_first_refusal_to_buy_freehold

eddddy

NatNat77 said:

And yes, I guess it's possible the loft could be converted but it is only a 1 bed with a small hallway if I remember rightly so I'm not sure if there'd be space for stairs. It would explain the offer at least though. Can they sell the freehold to this buyer do you know, or would the owner of downstairs have to have the right of first refusal, given they have expressed interest in buying? 

It doesn't sound like the this situation qualifies for the legal 'Right of First Refusal' in the first place,

But if your solicitor thinks it does apply, they can serve a 'Section 5' notice. But the 'Right to First Refusal' will fail anyway, because it needs more than 50% of the leaseholders to respond. (But it might delay the sale by 2 months.)

So the bottom line is that they can almost certainly sell the freehold to the investor.

NatNat77 said:

They are happy with the offer and presumably the lease extension can be timed so that it is extended on the same day as completion, or at least after exchange?

Has anybody actually asked your relative to grant a lease extension? In the situation you describe, I'm not sure why anyone would do that.
  

martindow

If the OP's relative owns the freehold of the building, why is a short lease a problem?  Can't they grant themselves a new 999 year lease and make the flat saleable?

eddddy

martindow said:

If the OP's relative owns the freehold of the building, why is a short lease a problem?  Can't they grant themselves a new 999 year lease and make the flat saleable?

I think the OP might be mixing-up 2 different scenarios.

1) If the relative was selling just the leasehold flat, it would be sensible to extend the lease first. (I suspect that was Plan A)

2) Now the relative is selling both the freehold building and the leasehold flat to the same person - it's probably more sensible for both parties to let the buyer deal with that. 

RiskAverse100

The problem with the lease extension point is that the law does not allow you to grant yourself a lease extension!

So in both these scenarios the lease extension would need to be granted to the buyer on completion.  The existing lease would be transferred and then immediately afterwards a simple lease extension deed would be completed in favour of the buyer.  Both would be registered at the Land Registry at the same time.

In scenario 2, the contract could deal with the right of first refusal point and provide for the freehold interest in the building to be transferred to the buyer for nothing once the two month period for responding to the Section 5 Offer Notice had been and gone.

NameUnavailable

Exemptions from the right of first refusal

The provisions do not apply where:[2]

• the flats are not a purpose built block and there is a resident freeholder who has been living there for at least the last 12 months

NameUnavailable

If an investor is offering an extra £20K for the freehold they probably know it's a good opportunity!

I don't know why the flat wasn't offered with a new 999 year lease on completion and share of freehold? The price should be much higher. The other share of freehold could be sold to the other flat as they've expressed an interest in buying it (assuming they will pay the going rate).

Would this net more than an extra £20K on what the short lease is being sold for?

RiskAverse100

This is quite correct.  However, the OP did not say that the relative lived in the upstairs flat, just that they owned it.  But if they do live there and the exemption applies then the right of first refusal problems disappears!

What is important is that if the investor buyer stacks up, then the lease won't be extended until the day of completion and so there is no risk of the relative having to do something prior to completion (extend the lease) only for the sale to fall through (which we of course hope it won't).