Am I unreasonable for thinking of pulling out (leasehold flat)?

BuyLon

The situation is that I am buying a leasehold (share of freehold) flat and there is ground rent payable but all leaseholders have stopped paying ground rent at some point but never altered the leases. All leaseholders form a freehold company. The ground rent also increases every 30 years and this opens up the danger of the AST trap (only theoretically). My solicitor has asked for a deed of variation to enter a mortgagee protection clause in the lease which would satisfy my lender but the seller is refusing. My solicitor asked the seller's solicitor to provide a letter from the freeholder to confirm no ground rent would ever be collected incl any arrears. That was provided but obviously with a sentence added that the situation may change in the future but this is 'unlikely'. It seems like there's no other options? My solicitor has been unable to find an insurer that would provide indemnity insurance because there's also a re-entry clause in the lease if it is breached which it technically is because of the ground rent situation. 

The other issue is that a S20 consultation for 'external redecoration' is under way but the form has not been issued yet. The property manager said that costs could be up to 10k per flat but would most likely be much lower. The seller immediately agreed to put in a retainer and cover the amount of up to 10k. I have repeatedly asked the EA to provide more details on what work will actually take place. My solicitor has asked the seller's solicitor the same but they have not provided any. The EA just keeps saying that he is waiting to hear from the seller. This seems very dodgy to me and I am thinking of pulling out or setting a deadline of coming Monday for those issues to be resolved and if not I will withdraw.

Am I too paranoid and unreasonable or not?

The flat ticked a lot of boxes and I will have lost quite a bit in solicitors fees. It is very demoralising.

user1977

The "AST trap" is going to be abolished within a matter of months when the Renters' Rights Bill gets passed, so it's even more theoretical than it ever was.

NameUnavailable

It sounds like the people who bought the freehold didn't know what they were doing. The whole point of a shared freehold is to get ownership of the building and in doing that they should give themselves 999 year leases and peppercorn ground rent.

How long is the lease on the flat?

Collecting ground rent is pointless because as a part freeholder you would be entitled to your share of it, so let's say there are 5 flats each paying £100 ground rent, you pay £100 and then the freehold company owes your £100!

The only exception is if some flats don't have a share of freehold then they would continue paying the ground rent (which then gets shared amongst the freeholders).

It seems a non issue (although the lease length might be an issue if it's not over 900 yrs).

As for the works you should be able to tell from looking at the building? If it's painted then that probably needs redoing and there's probably scaffolding to be put up.

Ultimately if you're not feeling comfortable then look for another place.

BuyLon

Thanks for your reply. There are 104 years left on the lease. All eight flats in the building have a share of the freehold. Yes, it sounds like the freehold company was not set up correctly or in a strange way. 

The outside of the building seemed fine to me, it is also not painted, just brick. 

ThisIsWeird

Is each leaseholder a 'director' of the new Freehold management company? (That's how it used to be, anyway).
And each has an equal vote in any decision?
It's highly unlikely that the FH co will act to revoke the lease on any leaseholder - they are all in the same boat. But it probably makes sense for all these processes to be either carried out correctly, or have the deeds altered to suit new requirements (but no rush for the latter, since changes are afoot in any case). Things like extending the 104-year lease term  will be cheap and simple - you are all in control of this.
Your seller is knocking £10k off the asking price for the walls? That sounds good - I can't think of many jobs that would cost more than that, so chances are you'll be quids in. And your survey (have you had this yet?) should determine the wall condition, so you should have a very good idea of what's required before you commit.
It all 'sounds' ok, but your suspicions of poor management could be correct.
Are you a switched-on person, used to dealing with contracts and fine print? Would you be happy to get stuck in and assist the group going forwards?
If you buy, get solid contents insurance, and add even more solid LegProt

EssexHebridean

If something about the transaction is making you uncomfortable or uneasy, it is absolutely not unreasonable to pull out - it’s the sensible thing to do!  Personally allowing that you have already established that there seems to be issues with the way the property is being managed, I think I’d be incredibly wary of making that purchase - what happens when there are major works to be done and nobody is quite geared up to dealing with that, for example? 

BuyLon

ThisIsWeird said:

Is each leaseholder a 'director' of the new Freehold management company? (That's how it used to be, anyway).
And each has an equal vote in any decision?
It's highly unlikely that the FH co will act to revoke the lease on any leaseholder - they are all in the same boat. But it probably makes sense for all these processes to be either carried out correctly, or have the deeds altered to suit new requirements (but no rush for the latter, since changes are afoot in any case). Things like extending the 104-year lease term  will be cheap and simple - you are all in control of this.
Your seller is knocking £10k off the asking price for the walls? That sounds good - I can't think of many jobs that would cost more than that, so chances are you'll be quids in. And your survey (have you had this yet?) should determine the wall condition, so you should have a very good idea of what's required before you commit.
It all 'sounds' ok, but your suspicions of poor management could be correct.
Are you a switched-on person, used to dealing with contracts and fine print? Would you be happy to get stuck in and assist the group going forwards?
If you buy, get solid contents insurance, and add even more solid LegProt

Yes, each leaseholder is a director in the company. 
Why is extending the lease cheap? I read it can be quite expensive with legal costs and so on? 

My solicitor has said we cannot progress unless this is sorted because she has a duty in relation to my lender who has voiced no principle objection to the ground rent issue as long as my solicitor can ensure they are protected. Is my solicitor being very cautious? I'm willing to go ahead even though there's a risk on paper but she seems to be saying we cannot unless this is properly resolved.

The survey was all fine, also regarding the outside of the building as far as the surveyor could tell. I spoke to a resident in the building today and the work will be largely for painting the window frames so I see why that could cost a bit. Apparently it is done every 5 to 7 years. So that seems to be okay actually. 

ThisIsWeird

BuyLon said:

ThisIsWeird said:

Is each leaseholder a 'director' of the new Freehold management company? (That's how it used to be, anyway).
And each has an equal vote in any decision?
It's highly unlikely that the FH co will act to revoke the lease on any leaseholder - they are all in the same boat. But it probably makes sense for all these processes to be either carried out correctly, or have the deeds altered to suit new requirements (but no rush for the latter, since changes are afoot in any case). Things like extending the 104-year lease term  will be cheap and simple - you are all in control of this.
Your seller is knocking £10k off the asking price for the walls? That sounds good - I can't think of many jobs that would cost more than that, so chances are you'll be quids in. And your survey (have you had this yet?) should determine the wall condition, so you should have a very good idea of what's required before you commit.
It all 'sounds' ok, but your suspicions of poor management could be correct.
Are you a switched-on person, used to dealing with contracts and fine print? Would you be happy to get stuck in and assist the group going forwards?
If you buy, get solid contents insurance, and add even more solid LegProt

Yes, each leaseholder is a director in the company. 
Why is extending the lease cheap? I read it can be quite expensive with legal costs and so on? 

My solicitor has said we cannot progress unless this is sorted because she has a duty in relation to my lender who has voiced no principle objection to the ground rent issue as long as my solicitor can ensure they are protected. Is my solicitor being very cautious? I'm willing to go ahead even though there's a risk on paper but she seems to be saying we cannot unless this is properly resolved.

The survey was all fine, also regarding the outside of the building as far as the surveyor could tell. I spoke to a resident in the building today and the work will be largely for painting the window frames so I see why that could cost a bit. Apparently it is done every 5 to 7 years. So that seems to be okay actually. 

Why is it cheap to extend the lease? Because, the Management Company owns the Freehold :-)
FH ManCo Meeting Agenda Item 1: "Shall we extend our leases to 999 years?" "YAY!" "Cool. What shall we charge ourselves for this?" "50p!"
Well, solicitor's costs, but you ain't going to charge yourselves money. 
Painting shouldn't cost £10k per flat or anything like, unless it's an exceptional building, so if the vendor is offering to reduce the asking price by that amount, great. Ask for sight of the quotes.
Your solicitor is being careful about the ground rent and stuff, all good due diligence. But, again, you effectively own the Freehold - you all control it. There is no remote Freeholder who suddenly realises a flat owner hasn't been paying their ground rent, and will try and revoke their lease.
The building having a ManCo which owns the FH, and for which all LHers are directors is the best setup. You have democratic control.
You'll have sight of their meeting minutes as part of the conveyancing process, and you can get an idea of how well it's run. There should be regular contributions to a maintenance fund, for example. They'll want individuals to act as chair, accountant, etc - can you bring anything to the table there?
It all sounds good.
You've spoken to another flat owner - that's good. Are they happy? Do they like living there? What else did they say?

BuyLon

ThisIsWeird said:

BuyLon said:

ThisIsWeird said:

Is each leaseholder a 'director' of the new Freehold management company? (That's how it used to be, anyway).
And each has an equal vote in any decision?
It's highly unlikely that the FH co will act to revoke the lease on any leaseholder - they are all in the same boat. But it probably makes sense for all these processes to be either carried out correctly, or have the deeds altered to suit new requirements (but no rush for the latter, since changes are afoot in any case). Things like extending the 104-year lease term  will be cheap and simple - you are all in control of this.
Your seller is knocking £10k off the asking price for the walls? That sounds good - I can't think of many jobs that would cost more than that, so chances are you'll be quids in. And your survey (have you had this yet?) should determine the wall condition, so you should have a very good idea of what's required before you commit.
It all 'sounds' ok, but your suspicions of poor management could be correct.
Are you a switched-on person, used to dealing with contracts and fine print? Would you be happy to get stuck in and assist the group going forwards?
If you buy, get solid contents insurance, and add even more solid LegProt

Yes, each leaseholder is a director in the company. 
Why is extending the lease cheap? I read it can be quite expensive with legal costs and so on? 

My solicitor has said we cannot progress unless this is sorted because she has a duty in relation to my lender who has voiced no principle objection to the ground rent issue as long as my solicitor can ensure they are protected. Is my solicitor being very cautious? I'm willing to go ahead even though there's a risk on paper but she seems to be saying we cannot unless this is properly resolved.

The survey was all fine, also regarding the outside of the building as far as the surveyor could tell. I spoke to a resident in the building today and the work will be largely for painting the window frames so I see why that could cost a bit. Apparently it is done every 5 to 7 years. So that seems to be okay actually. 

Why is it cheap to extend the lease? Because, the Management Company owns the Freehold :-)
FH ManCo Meeting Agenda Item 1: "Shall we extend our leases to 999 years?" "YAY!" "Cool. What shall we charge ourselves for this?" "50p!"
Well, solicitor's costs, but you ain't going to charge yourselves money. 
Painting shouldn't cost £10k per flat or anything like, unless it's an exceptional building, so if the vendor is offering to reduce the asking price by that amount, great. Ask for sight of the quotes.
Your solicitor is being careful about the ground rent and stuff, all good due diligence. But, again, you effectively own the Freehold - you all control it. There is no remote Freeholder who suddenly realises a flat owner hasn't been paying their ground rent, and will try and revoke their lease.
The building having a ManCo which owns the FH, and for which all LHers are directors is the best setup. You have democratic control.
You'll have sight of their meeting minutes as part of the conveyancing process, and you can get an idea of how well it's run. There should be regular contributions to a maintenance fund, for example. They'll want individuals to act as chair, accountant, etc - can you bring anything to the table there?
It all sounds good.
You've spoken to another flat owner - that's good. Are they happy? Do they like living there? What else did they say?

Thanks so much for your thoughts. That's good to know re the lease extension.

The vendor is putting in a retainer, not reducing the asking price. I think that is actually better because they would then cover anything up to that amount. There is a managing agent who is responding for maintenance and he hasn't gotten quotes yet, so I'll just have to accept that. 

The other flat owner seemed very happy and has lived there for quite some time. I asked if they have an AGM or how decisions are made. She said they don't do AGMs because people would just "talk for hours", a bit concerning to me, and there is a property manager, paid by the leaseholders, who oversees maintenance and everything else. 

ThisIsWeird

Ha ha, yes, such meetings need a good chair to keep things focussed. But, it's still a nice way to get to know the other folk. You'll need an AGM regardless.
Are you in a position to assist in such things?!
My first flat had a 4-Director man co, and it all worked fine. I think having 8 folk is better, as decisions should be entirely democratic, whereas I found that folk in my situation were swayed by others as they didn't want to upset them - daft decisions such as a flat owner gets their sink fund monies back if they sell - I objected. And one flat owner said they wanted a tile guard fitted as they liked sitting on their patio, but we're worried about slipping tiles - and wanted everyone to pay for it. Ditto.
Remember - solid contents, and solid LegProt.

BuyLon

Thanks. I'd be happy to get involved in chairing and doing some coordination. I see what you mean regarding those discussions and agree. 

When you say legal protection, what sort of legal protection do you mean in this case?