Selling House With Both Freehold and Leasehold In Place

TaxedLoafer

Hello all, I'm hoping someone can provide me with a simple solution to the below problem:

Unknown to me at the time, my parents bought the freehold for their house in 2010 (I was not aware it was originally leasehold in the first place) and now, as executor of their estate, I am in the late stages of selling it. However the buyers' lenders have just questioned the status of the freehold/leasehold as they believe the leasehold still exists alongside the freehold; both in my late parents' names.

The only details I have is the title document and confirmation that my parents own the freehold and details of payments to a 999 year lease from the 1970's until 2010. There are no easements or restrictive covenants on the freehold or leasehold. My conveyancer is being less that helpful, taking days to respond to the simplest of questions, then often without an answer and I'm starting to fear the sale will fall through even though the buyers are very keen. Exchange and completion is/was due to happen at the end of this month.

I cannot believe that this issue has not cropped up many times before but I appear to be going around in circles. I know nothing of the intricacies of conveyancing and had naïvely assumed that if you bought the freehold for a property for which you were also the sole leaseholder only the freehold would remain. But as the buyers' lenders suddenly seem to think the leasehold is still in force and is a problem, am I also being naïve in thinking this is something a conveyancer should have no problem sorting out without involving me and causing me a lot of stress?

I would be grateful for any ideas of how to progress with out losing the sale or it being prohibitively expensive.

Thanks in advance

TL

user1977

The leasehold wouldn't have vanished by itself, so it's reasonably common for the same owner to have both the leasehold and freehold interests.

Not in itself a problem other than I am guessing at the moment you've only got probate referring to the freehold?

Novice_investor101

I own both the leasehold title & freehold title to my house. They are registered under two separate title plans/numbers on the Land Registry. When I bought the freehold it wasn’t feasible to merge the two titles at the time. So if I choose to sell my house the sale & transfer would be for both titles from me as vendor to the buyer. Once the mortgage is paid off I may merge them & extinguish the leasehold title if the covenants can be included on the freehold title.

It’s possible there’s two separate titles to your property just like mine.

TaxedLoafer

Thanks for the comments, after checking with the Land Registry and spending most of the day looking into it, I think I have discovered the problem: a clerical error.
Some of what I wrote above in good faith was incorrect. This is what I have discovered:

The house was originally a leasehold but on a single freehold title with more than 100 other houses spread around the area (and further). When my parents bought the freehold a new title deed was created splitting it off from the others. However, in doing so the conveyancers probably did a quick cut and paste of the original freehold that included a flag stating leases present. As far as I can tell, the current (new) freehold title has never had any leaseholds associated with it and the flag is spurious but should just get fixed when the freehold is transferred. All I need to do now is persuade the buyers' lenders of this.

I guess the real lesson learned here is: cheap, online conveyancers are cheap for a reason.

TL

ExEstateAgent

You will be selling both the leasehold and the freehold.

The lenders might be worried that they're lending against just a leasehold or vice versa. Confirm that BOTH are being sold together (via your conveyancers).

eddddy

TaxedLoafer said

When my parents bought the freehold a new title deed was created splitting it off from the others. However, in doing so the conveyancers probably did a quick cut and paste of the original freehold that included a flag stating leases present. As far as I can tell, the current (new) freehold title has never had any leaseholds associated with it and the flag is spurious but should just get fixed when the freehold is transferred. 

That's not really how it works.

It sounds like your parents owned the leasehold title of the house. Then they bought the freehold title.

So then they owned 2 titles - the freehold title and the leasehold title.

(They could have paid a solicitor to merge the titles, but it sounds like they didn't bother.)

So now you have to sell both titles together. The buyers can choose to merge the titles, if they want to.

You'll probably have higher legal fees, because you're selling 2 titles - not 1.

The buyers will have higher legal fees for the same reason - and even higher legal fees, if they want to merge the titles. (They might be a bit annoyed that you didn't warn them about this at the outset!)

TaxedLoafer

Hi eddddy,

I appreciate the comment, and you are right, I really don't know how it works, but could you explain why it might be that there is no record of a Leasehold Title for the house at all on the Land Registry site? Neither a search on address nor Freehold title deed number comes up with anything other than the Freehold. Searches on neighbouring houses that I happen to know are still Leasehold have 2 records returned for Freehold & Leasehold, my parents' return only the Freehold.

I think I understand the selling of part/splitting of a Freehold but I don't know where else to look to find a record of an active Leasehold. As it happens, I do have the original (paper) 1966 Lease Agreement and the selling of it to my parents in 1971 but that is where the trail goes cold. Is it possible that they were merged but the Freehold title wasn't changed? Or am I looking in the wrong place?

TL

eddddy

TaxedLoafer said

could you explain why it might be that there is no record of a Leasehold Title for the house at all on the Land Registry site?

Registration at Land Registry became compulsory whenever a property was bought/sold from 1990 onwards.

I think you're saying that your parents bought the leasehold house in 1971. So registration wasn't compulsory then, and it may not have been possible at all.

The neighbouring leasehold houses might have been bought/sold since 1990, so their leaseholds would have been registered when their sales happened.

You say you have all the paperwork (deeds etc) from 1971, so that is what you give your solicitor as proof that your parents owned the leasehold property.

Back in 1971, the only proof that you owned a property was your paper deeds. So people generally kept them in a very safe place.

Now that you're selling the leasehold, it will become registered with Land Registry in the name of the new owners (and the paper deeds will become redundant).

Edit to add…

You say that the lease was originally granted in 1966 - how long was it for?

If there aren't many years left on the lease, that might be a problem for the buyer's mortgage lender - they might insist that the lease is extended, or the freehold and leasehold merged. (Neither of those should be a 'stopper' for the buyer, but it could just result in delays and more legal fees.)

And/or if the buyers have applied for a mortgage saying that the house is freehold, they would need to either resubmit the application for a leasehold house, or merge the titles to create a fully freehold house. (So that might also cause a delay.)

lfc321

I don't know enough to comment on the details of case, but wanted to add something on the impact on your buyers.

We bought (and still own) our house via a separate freehold and leasehold (the previous owners bought the freehold and didn't merge the titles). There are two separate titles at Land Registry, both of which we own. If having two titles to transfer added any cost to the purchase process, it was absolutely minimal. And it certainly wasn't an issue for our lenders. I don't know whether it increased costs on the sellers side - but I do know they didn't think it was worth merging the titles (and neither have we).

All of that said, we live in one of the areas of the UK where leasehold houses are the norm (indeed our last house was leasehold with a £1.05 per year ground rent), so the separate title issue didn't worry us at all. I suppose in theory it could create some worry and make the house less attractive to your buyers, but there's no reason why it should.

eddddy

lfc321 said

And it certainly wasn't an issue for our lenders.

£1.05 ground rent sounds as though it was originally one guinea.

So I'm guessing you had a 999 year lease - so that wouldn't b e a problem for mortgage lenders.

But for example, a 99 year lease granted in 1966 would be a problem for mortgage lenders.

And I guess you knew the situation when you applied for your mortgage, so you provided the correct information - so it went straight through.

But if the OP told their buyer they were buying a straightforward freehold house, the buyer might not have provided the correct information in their mortgage application - which is likely to cause delays.

Land_Registry

TaxedLoafer - if you DM me with the title number of the register you are reading I can try to explain what the registered information means and how the lender/buyer will be viewing it as a 'risk' for example.

I've not come across a scenario where someone puts a "flag stating leases present" as that detail is most likely to only come from the actual registered information. That might be what you mean here but seeing the register for myself will help my understanding and may help you/others comment further?