Share of Freehold Transfer Nightmare - advice needed 🙏

mpdimitrova

Hi everyone,

Hoping someone here has experience with messy share of freehold situations. We’re in the middle of selling our flat and have hit a bump in the road.

Our setup:

• Our building has 4 flats.
• Each flat owner has a 25% share of the freehold.
• We’re all individual joint freeholders with no management company or formal structure.

We’re trying to sell our flat. Everything was going smoothly until we reached the point of transferring our share of the freehold (the TR1 form), which needs signatures from all four freeholders.

We got two signatures easily… and then got completely stuck on the third.

This freeholder ignored us for ages, then eventually told us to contact his solicitor. That solicitor ignored us as well, though our estate agent eventually managed to get through to him.

This freeholder actually sold his own flat over two years ago, but only the leasehold, not the freehold. Back then, they had sent us a TR1 to sign, which we did. One freeholder refused to sign because they never provided contact details for the incoming buyer. The issue went quiet and we didn't think of it again.

But it turns out they completed the sale without transferring the freehold. They added a clause in their contract saying they’d use “best endeavours” to transfer the freehold within two years, but that deadline has now passed. We never heard anything about it again. (We got this information through our estate agent who spoke with the freeholder's solicitor)

Now, he is refusing to sign our TR1, saying he’d be in breach of his old contract if he does.
Background: He’s in his mid-70s, used to be a solicitor, owns multiple properties… and from what we’ve heard, he’s very comfortable digging his heels in. He does not see this as an important matter, and hasn't done anything about it in over four weeks.

We’re honestly at a loss.

These are the two paths we’re currently considering:

Option 1:
Get his solicitor to send a new TR1 for his missing transfer.
We coordinate signatures from all freeholders.
His solicitor submits a fast-track application to Land Registry.
Once that’s done, our solicitor issues our TR1 and gets the new freeholder to sign it.

Option 2:
Push back and insist he signs our TR1 now, as it’s arguably his legal obligation as a joint freeholder. 

Other complications:
Our own solicitors haven’t been great. We’ve had to figure most of this out ourselves and are feeling totally overwhelmed. We’re considering switching solicitors, but worried it’ll slow us down even more.

Our goal:
We just want to complete our sale and not lose our buyers.
Is this situation as bad as it feels?
What power do we actually have here?
Has anyone dealt with something similar?

anselld

Option 2 is a non-starter.  He is not legally obliged to sign as he probably well knows.

People don't usually dig in just to be awkward.  Try to find out what it is he wants in exchange for co-operation and, if it is reasonable and achievable, give him what he wants.

SDLT_Geek

Would your buyer accept a purchase of the leasehold interest (which is where all of the value sits) rather than the freehold?  You could in the contract agree to cooperate on request with any efforts the buyer makes to get the freehold position regularised.

This might be acceptable to the buyer, as the lessees collectively can force the freeholders to sell their interest.

poseidon1

Quick question how long are the individual leases?

If they are not virtual freeholds ( ie 999 years at peppercorn rent), each freehold disposal may have a value separate and distinct from  the individual leases and may constitute potential CGT disposals depending on 'marriage values'.

A friend is in that predicament with trying to extend a lease below 70 years  ( prior to selling outright ) where she owns a share of the freehold via a collective  limited company owned by them all. The other leaseholders are in the same boat, and are deliberating how to avoid corporation tax on the lease extension premiums, and then how to extract the money without additional taxes. A real mess.

In your situation you might achieve a better chance of success with the 'absent' Freeholder if you enlist the assistance of the leaseholder who is currently without his/her share of freehold. The deal could be you cover his/her fees to have their freehold conveyed them, if your TR1 is dealt with at same time. After all that leaseholder will have difficulty selling in future if they do not acquire their freehold share, and your predicament should be a wake up call for them.

RiskAverse100

Your situation is far from unique.  However, it is never a straightforward one to resolve.  It is the solicitors who acted for the person who bought the freeholder in question's flat who are to blame.  They should never have allowed contracts to be exchanged unless the solicitors acting for the freeholder were holding a fully signed Transfer Deed for the freehold and there was a contract clause providing for this to be handed over on completion.

The contract clause that was included involving 'best endeavours' was wholly inadequate.

As making an application to the Court is not practical, your only option is to use the power that the trustees have under Section 36 of the Trustee Act 1925.

Where the trustees of a trust are not also the beneficiaries, this power can be used to, for example, replace a trustee who has died where the document that created the trust does not cover such a situation.  However, the power would also cover a trust situation such as yours and can also be used to replace a trustee who leaves the UK for more than 12 months, wants to retire as a trustee, is unfit or incapable to act, or refuses to act.

I think you could reasonably argue that the freeholder/trustee in question by not cooperating at all regarding the sale and not signing a Transfer Deed for the freehold interest is refusing to properly exercise his powers as a trustee and, as a result, is failing to manage the trust assets - i.e. the freehold interest in the building.

I think that he should be given one last opportunity to voluntarily sign a Transfer Deed (either Option 1 or Option 2) and you should make it clear that if he does not do so then the other trustees will have no option but to conclude that he is deliberately refusing to comply with his trustee obligations.  I would give him a very short time to comply.  If he refuses to sign a Transfer Deed then your solicitor can prepare a trust deed 'retiring' the non-cooperative freeholder and appointing his buyer in his place.  This is known as a Deed of Appointment and Retirement of Trustees.  This will enable the four current owners of the four flats to sign a Transfer Deed so that your buyer can replace you as a joint freeholder.

I should mention that a Deed of Appointment and Retirement of Trustees is normally sufficient to transfer the freehold interest without a separate Transfer Deed being required.  This is what Section 40 of the Trustee Act 1925 says.  This would mean that your buyer's solicitors could register both the Deed of Appointment and the Transfer Deed signed by the four flat owners at the same time as the transfer of your flat by you to the buyer.

The Section 36 power should only be used in this way if there really are no other options available.  You also have to be happy that no-one is going to make a challenge.  The other freeholder trustees won't and I cannot really see the freeholder in question doing so.

With the benefit of hindsight, it would have been a very good idea to have had a Declaration of Trust signed at the time the freehold interest was originally acquired by the then owners of the four flats.  This could have included a specific power enabling a trustee who sells their flat but who does not sign a transfer deed for the freehold being removed by the other trustees.  Something for your buyer to think about though!

mpdimitrova

anselld said:

Option 2 is a non-starter.  He is not legally obliged to sign as he probably well knows.

People don't usually dig in just to be awkward.  Try to find out what it is he wants in exchange for co-operation and, if it is reasonable and achievable, give him what he wants.

Thank you - appreciate the advice. We've sent another email trying to understand what he wants, and will follow up with a call tomorrow. 

 SDLT_Geek said:

Would your buyer accept a purchase of the leasehold interest (which is where all of the value sits) rather than the freehold?  You could in the contract agree to cooperate on request with any efforts the buyer makes to get the freehold position regularised.

This might be acceptable to the buyer, as the lessees collectively can force the freeholders to sell their interest.

Unfortunately, not. We had proposed this option, but our buyers are first time buyers and wary of what they see as a "workaround".

poseidon1 said:

Quick question how long are the individual leases?

If they are not virtual freeholds ( ie 999 years at peppercorn rent), each freehold disposal may have a value separate and distinct from  the individual leases and may constitute potential CGT disposals depending on 'marriage values'.

A friend is in that predicament with trying to extend a lease below 70 years  ( prior to selling outright ) where she owns a share of the freehold via a collective  limited company owned by them all. The other leaseholders are in the same boat, and are deliberating how to avoid corporation tax on the lease extension premiums, and then how to extract the money without additional taxes. A real mess.

In your situation you might achieve a better chance of success with the 'absent' Freeholder if you enlist the assistance of the leaseholder who is currently without his/her share of freehold. The deal could be you cover his/her fees to have their freehold conveyed them, if your TR1 is dealt with at same time. After all that leaseholder will have difficulty selling in future if they do not acquire their freehold share, and your predicament should be a wake up call for them.

It is a "virtual" freehold - there's ~985 years on the lease at peppercorn rent. I like your idea about getting in contact with the leaseholder who is currently without their share of freehold. Though all we know about them is the name of their company. Our only option seems to be to send a letter to the director of said company, to the address listed on Companies House. 

RiskAverse100 said:

Your situation is far from unique.  However, it is never a straightforward one to resolve.  It is the solicitors who acted for the person who bought the freeholder in question's flat who are to blame.  They should never have allowed contracts to be exchanged unless the solicitors acting for the freeholder were holding a fully signed Transfer Deed for the freehold and there was a contract clause providing for this to be handed over on completion.

The contract clause that was included involving 'best endeavours' was wholly inadequate.

As making an application to the Court is not practical, your only option is to use the power that the trustees have under Section 36 of the Trustee Act 1925.

Where the trustees of a trust are not also the beneficiaries, this power can be used to, for example, replace a trustee who has died where the document that created the trust does not cover such a situation.  However, the power would also cover a trust situation such as yours and can also be used to replace a trustee who leaves the UK for more than 12 months, wants to retire as a trustee, is unfit or incapable to act, or refuses to act.

I think you could reasonably argue that the freeholder/trustee in question by not cooperating at all regarding the sale and not signing a Transfer Deed for the freehold interest is refusing to properly exercise his powers as a trustee and, as a result, is failing to manage the trust assets - i.e. the freehold interest in the building.

I think that he should be given one last opportunity to voluntarily sign a Transfer Deed (either Option 1 or Option 2) and you should make it clear that if he does not do so then the other trustees will have no option but to conclude that he is deliberately refusing to comply with his trustee obligations.  I would give him a very short time to comply.  If he refuses to sign a Transfer Deed then your solicitor can prepare a trust deed 'retiring' the non-cooperative freeholder and appointing his buyer in his place.  This is known as a Deed of Appointment and Retirement of Trustees.  This will enable the four current owners of the four flats to sign a Transfer Deed so that your buyer can replace you as a joint freeholder.

I should mention that a Deed of Appointment and Retirement of Trustees is normally sufficient to transfer the freehold interest without a separate Transfer Deed being required.  This is what Section 40 of the Trustee Act 1925 says.  This would mean that your buyer's solicitors could register both the Deed of Appointment and the Transfer Deed signed by the four flat owners at the same time as the transfer of your flat by you to the buyer.

The Section 36 power should only be used in this way if there really are no other options available.  You also have to be happy that no-one is going to make a challenge.  The other freeholder trustees won't and I cannot really see the freeholder in question doing so.

With the benefit of hindsight, it would have been a very good idea to have had a Declaration of Trust signed at the time the freehold interest was originally acquired by the then owners of the four flats.  This could have included a specific power enabling a trustee who sells their flat but who does not sign a transfer deed for the freehold being removed by the other trustees.  Something for your buyer to think about though!

Thank you so much for the detailed explanation, much appreciated. We have sent one final plea for cooperation, and if he ignores this too, we will discuss the option above with our solicitors. 

Thanks all for your help! 🙏