freehold versus leasehold

jcdel

Bought an apartment (subject to contract).Initially was told it was freehold and now told by the solicitors that they want another £250 because the property is leasehold.After checking with the estate agents etc. etc. we now find out that the property is freehold but holds the leases on the other three properties within the boundaries of the building.Any help on this would be gratefully appreciated before we start laying more money out unecessarily.Is this an advantage or a big disadvantage.There is a large boundary wall that is in need of urgent repair.Would this be our problem.We are downsizing to pay off a mortgage but don't want to finish up worse off..

chuckles1066

jcdel wrote: »

Bought an apartment (subject to contract).Initially was told it was freehold and now told by the solicitors that they want another £250 because the property is leasehold.After checking with the estate agents etc. etc. we now find out that the property is freehold but holds the leases on the other three properties within the boundaries of the building.Any help on this would be gratefully appreciated before we start laying more money out unecessarily.Is this an advantage or a big disadvantage.There is a large boundary wall that is in need of urgent repair.Would this be our problem.We are downsizing to pay off a mortgage but don't want to finish up worse off..

You appear to have assumed the role of freeholder to the other three properties?

I'm sure that's not a place you want to be.........

I'd be inclined to have a word with your solicitor asking him why he didn't tell you?

Doozergirl

A freeholder should never be financial worse off for being a freeholder. All costs are split equally between the leaseholders. You get ground rent each year and even if you have to organise the buildings insurance, you can collect the money from the other leaseholders and you will be allowed to charge a reasonable admin fee on top. ou really need to read through the lease to see what your responsibilities are

It can be a big benefit. Do you know how long the leases are on each flat?

chuckles1066

Doozergirl wrote: »

It can be a big benefit.

Nope.

Never.

It's why virtually none of the major banks/building societies will grant a mortgage on a freehold flat/apartment.

subjecttocontract

Normally the freehold has a value and can be separated.

Perhaps you should consider buying it and selling the freeholds on.....there is usually a ready market for these. Many are sold thru property auctions.

Doozergirl

Sorry, but what are you all on about?!

A true freehold flat would be unmortgageable but a flat that owns the freehold to an entire building is not.

If we're going to debate chuckles, then could you explain a bit better rather than 'yes you can' or 'no you can't'. It's likely to scare the OP.

There can only be one freehold, you can't seperate them off to sell at auction. You can sell the freehold off but you legally have to offer the freehold collectively to the other leaseholders and you cannot sell to anyone else for a lower price than you offered it for. I'm not sure that selling off the freehold of a falt to which you are also a leaseholder would be a good idea in terms of control.

EdInvestor

jcdel wrote: »

Bought an apartment (subject to contract).Initially was told it was freehold and now told by the solicitors that they want another £250 because the property is leasehold.

This is an advantage: a freehold apartment is a big problem.

After checking with the estate agents etc. etc. we now find out that the property is freehold but holds the leases on the other three properties within the boundaries of the building.

Thus the owner of the flat is the freeholder of the entire building, plus the owner of the leasehold of his own flat.

Any help on this would be gratefully appreciated before we start laying more money out unecessarily.Is this an advantage or a big disadvantage.There is a large boundary wall that is in need of urgent repair.Would this be our problem.

No.All the costs of running the building (repairs, insurance etc) are shared by all the leaseholders.

How long are the leaseholds on the other flat?You may be able to make money from buying the freeholds by charging for lease extensions. Alternatively you may be able to turn the property into a "share of freehold" system where the leaseholders all own an equal share of the freehold of the building.

Much info here:

https://www.lease-advice.org.uk

Richard_Webster

You have to make sure your mortgage lender understands the position as they may say they don't lend on freehold flats...

You quote them 5.5.3 of the CML Lender's Handbook:

5.5.3 Unless we indicate to the contrary (see part 2), we have no objection to a security which comprises a building converted into not more than four flats where the borrower occupies one of those flats and the borrower or another flat owner also owns the freehold of the building and the other flats are subject to long leases.
5.5.3- Do you lend in these circumstances?

Yes, subject to the requirements of 5.5.3 being satisfied.


5.5.3.1 If the borrower occupying one of the flats also owns the freehold, we will require our security to be:
5.5.3.1.1 the freehold of the whole building subject to the long leases of the other flats; and
5.5.3.1.2 any leasehold interest the borrower will have in the flat the borrower is to occupy.
5.5.3.2 If another flat owner owns the freehold of the building, the borrower must have a leasehold interest in the flat the borrower is to occupy and our security must be the borrower's leasehold interest in such flat.
5.5.3.3 The leases of all the flats should contain appropriate covenants by the tenant of each flat to contribute towards the repair, maintenance and insurance of the building. The leases should also grant and reserve all necessary rights and easements. They should not contain any unduly onerous obligations on the landlord.

The bit in blue is the attitude of the particular lender. Most major lenders will accept this scenario. Bradford & Bingley/Mortgage Express will not and HSBC doesn't subscribe to the CML Handbook so nobody knows what they will say but I have had a client refused by them in this situation.

martinman3

There have been a few assumptions made by previous posters which are not necessarily correct.
The leases and how they are written will allow you to decide whether being the freeholder is a good or bad thing.
If the leases do not have any provision for demanding service charges for maintenance work in advance you will have to pay for unforseen work yourself and ask for payment from the leaseholders later. If they decide not to pay for some reason you will still need to carry out the work and use the LVT and/or courts.
Do any of the leaseholders have a history of non-payment of service charges ? Assuming that the seller didn't tell you about the freehold then they also didn't tell you about the state of the maintenance accounts ?

jcdel

Many thanks for all the replies.Fortunately we are not needing a mortgage due to selling our own property.The advice given has been really helpful and obviously now our first port of call tomorrow will be the solicitors.As a result of this forum I am now more confident and pleased that I registered.The property is excellent and good value other than the wall

:beer:

fimonkey

Doozergilrl and Richard Webster have given good advice on these boards previously regarding freehold and leasehold.

My own personal two penneth worth is that the freehold allows you to remain in control (as opposed to a leasehold where, without any sinking fund, you can be hit with BIG unexpected repair bills).

You Do have responsibility as a freeholder, but that means you also have control too.