Buying an underlease - downsides of having a headlease between you and the freeholder?

keiratea

Hello,

We're in the process of buying a leasehold flat and discovered it's a bit more complicated than usual - there's a headlease involved.

This is in England - London specifically.

As I understand it, the setup is like this:

1. Freehold title for a pretty big area covering several buildings

2. Leasehold title for the building (headlease)

3. Leasehold title for the flat (underlease)

We would be buying the underlease (3).

The headlease (2) is owned by the resident association, which would be our lessor.

The freehold title (1) is owned by a charity (Canal and River Trust), which is the resident associations's lessor.

I'm trying to understand if there's any downsides to this setup with having a headlease in between us and the freeholder - anything to watch out for?

I was wondering maybe there's some legislation that protects leaseholders that won't apply to us because our lessor is not a freeholder?

Both the leases are for 999 years so rights to extend the leases shouldn't be a problem at least!

I'm not sure how common this is or not - interested to here if other folks have encountered this.

Thanks!

eddddy

keiratea said:

I was wondering maybe there's some legislation that protects leaseholders that won't apply to us because our lessor is not a freeholder?

Leaseholder protection legislation generally refers to your 'Landlord'. In your case, your Landlord will be the Headlease owner, rather than the freehold owner - but you'll have all the same protections.

Having a headlease wouldn't stop you extending the lease (although you won't need to), or collectively buying the freehold using "Collective Enfranchisement". But the costs might be higher, as you would have to pay the legal costs of both the Headlease owner and freehold owner.


FWIW, legislation and legal documents will sometimes use terms like "Intermediate Landlord" and "Superior Landlord". In your case, the Headlease owner would be an Intermediate Landlord, and the Freehold Owner would be the Superior Landlord.


Your underlease is likely to refer to covenants (or rules) in the headlease which you must adhere to - so it's sensible to read the headlease, to see what they are. And just to generally understand each party's rights and responsibilities.

Overall, it's unlikely that you'll have any dealings with the freehold owner - unless you want to collectively buy the freehold.

keiratea

Thanks eddddy. That's good to know that the legislation will cover us too and collective enfranchisement is still possible.

I've asked our solicitors for a copy of the headlease so we know what's in it - slightly worryingly they hadn't requested it until I asked about it!

In case it helps anyone else, while doing some more googling I found this "Guidance Note" from the Association of Residential Managing Agents which also seemed helpful (and agrees with what you said) - https://blocsphere.co.uk/download/136/arma-guidance-notes/12878/a01_-head-leases.pdf

Jonboy_1984

Ask your solicitors to make sure the land registry details for the freehold titles match the real situation for both the headlease and freehold.


We had the opposite issue where an omission at land registry unintentionally created a similar arrangement, and it did cause significant issues when we came to a lease extension (and who knows what else it may have caused if we had stayed longer term).