Purchasing a freehold flat in London

herbarium

Hello,

I'm buying a freehold flat in London and I was hoping to find advice about how to proceed with the purchase.

It's a downstairs flat in a victorian conversion and property includes the full freehold of the building including garden, side access, front garden and the upstairs flat who is on a leasehold.

From doing our research we understand this is rare and peculiar. (And no, it's not a share of freehold, we've read about this on the forum already!) Mortgage providers are not happy about it, but some have agreed to work with us. We understand it is hard to sell a flat onwards with this arrangement too.

We have asked the sellers to draw up a lease for our flat, and then offer the freehold to the leaseholders (us & upstairs) via the statutory processes (Section 5 notice). We hope this will allow us and the upstairs to share the freehold which is a more normal arrangement. 

I was wondering has anyone else done this before? Is this the correct thing we should be doing? Is there any benefit to maintaining the full freehold of the building and land and having a leaseholder live above?

Best!

AskAsk

Getting the seller to convert the freehold into a management company and then the two owners become leaseholders is a long process and will involve solicitors fees and the agreement of the owner upstairs to buy into the freehold.

I can't see the seller agreeing to this as it will take too long and the owner upstairs may not want to do so.

You would also need to do companies house returns for the management company.

As it is only 2 flats in the block, it isn't unusual for one flat to hold the freehold.

ordnancesurvey84

Our property has this arrangement. We own the freehold for the entire building, subject to there being a leasehold on the basement flat, and there's no leasehold on the part of the building that we live in.
It's best not to use the term "freehold flat" to describe this arrangement.
If you use that phrase when trying to get a mortgage you'll be turned away.
When people say "freehold flat" they refer to a situation in which there are two or more flats - one above the other, and each owner owns the freehold of their flat, and there are no leaseholds through which to enforce obligations on the other.
Lenders won't lend on freehold flats as a result as enforcing maintenance is a nightmare.
However if you own the freehold of the entire building, this problem doesn't arise and most lenders will lend.
To see specific details on individual lenders, take a look here: https://lendershandbook.ukfinance.org.uk/lenders-handbook/englandandwales/question-list/2056/

herbarium

AskAsk said:

Getting the seller to convert the freehold into a management company and then the two owners become leaseholders

The upstairs flat is already on a lease from the freehold. The seller has agreed to issue a lease on the downstairs flat should we want it and then offer it to the leaseholders via Section 5 notice. Does that involve a management company?

 AskAsk said:

As it is only 2 flats in the block, it isn't unusual for one flat to hold the freehold.

We've been told by lawyers and mortgage brokers that this is highly unusual?

herbarium

ordnancesurvey84 said:

Our property has this arrangement. We own the freehold for the entire building, subject to there being a leasehold on the basement flat, and there's no leasehold on the part of the building that we live in.

Thanks for your comments, very helpful.

Would you consider splitting your freehold with the other leaseholder? Do you have any benefits from owning the freehold for the entire building?

ordnancesurvey84

Well we prefer owning the entire freehold, as it gives us more autonomy on any decisions we want to make about property maintenance, and while we continue to live here I don't think we'd want to change the arrangement.
At the moment we have no plans to sell, but if we do notice that we're running into difficulties with potential buyers when it comes to selling up, then I guess we'd look to change the setup at the time of sale.

loubel

I suspect it hasn't been explained correctly to your lender as most accept this sort of set up. Who are you looking to mortgage with?

Jaybee_16

When I lived in London I lived in the ground floor leasehold flat and someone else lived in the leasehold first floor flat. I owned the freehold.
When I sold my flat, it was leasehold with the building freehold included in the sale.
Buyer had no problem getting a mortgage.

i_like_cats

The flat you’re purchasing will be more valuable with the freehold for the whole building. Don’t dream of splitting it!

With Victorian conversions in zones 2-3, it’s more common to see leasehold flats for sale.  And annual service charges of £1000 to £4000, for which you may or may not see any benefit.

With share of freehold you can run into trouble down the line otherwise because personalities come into play and a second freeholder may have very different ideas about how well maintained they want the property to be.   And a future buyer would also need to be compatible with this second flat owner.

So it’s far better that you’re the freeholder of the whole property.   

AskAsk

herbarium said:

AskAsk said:

Getting the seller to convert the freehold into a management company and then the two owners become leaseholders

The upstairs flat is already on a lease from the freehold. The seller has agreed to issue a lease on the downstairs flat should we want it and then offer it to the leaseholders via Section 5 notice. Does that involve a management company?

 AskAsk said:

As it is only 2 flats in the block, it isn't unusual for one flat to hold the freehold.

We've been told by lawyers and mortgage brokers that this is highly unusual?

somebody has to be the freeholder and if both flats are leaseholders then a management company needs to be created to be the freeholder.  the two leaseholders could be directors of the management company but it still needs the company accounts submission to companies house annually.

as others have said, it is better to be the sole freeholder as you can make your own decisions on repairs and maintenance without the agreement of the other flat owner.  it can be a pain though to collect service charges and major works costs if the other flat doesn't pay and you have to carry out legal proceedings against them.  For a large company, this can be done more easily but for an individual it may be a pain to sort out.

eddddy

Just taking a step back...

• Do you want to be joint owners of the freehold with the flat owner upstairs (and any future flat owners upstairs)?

• Or would you prefer to be sole owner of the freehold?

• Also, does the person upstairs want to be a joint owner of the freehold? Are they happy to pay a fair price? Are they happy to instruct and pay for their own solicitors?

Being sole freeholder gives you a lot more control and flexibility - you don't have to negotiate/agree things with somebody else - who might have very different views from you on things. And with joint freeholders, there's the risk of deadlock, if you can't agree.

But being sole freeholder also means you have many more responsibilities as. As far as the law is concerned, you will be a landlord, and the person upstairs will be your tenant. There's a pile of legislation that you should really get familiar with.