Problem with freehold - any ideas?

scottmcgarvey

Hello

I have a leasehold flat I bought from my Mother back in 1992. I desparately need to sell, but have hit a stumbling block. The flat is the bottom half of what was a 4-bedroom house (having been originally built as 2 flats, the buyer before my mother bought them both, and made into a house). At the time I bought the flat, I had rented it for some years before, and she lives in the top.

A lease was created - but only for the bottom flat. Therefore her top flat is freehold. Why she chose not to have a lease created for her top flat I think was just to save on solicitor's fees.

Some years later (approx 2004), she got herself into some money problems, and raised a mortgage on the top flat. It now transpires that as there is still no lease on the top flat, so the mortgaged freehold effectively includes the freehold of the lease on mine! My solicitor informs me that this is very likely to put off buyers - it will be spotted by any decent solicitor, and quite likely some estate agents too. She did her mortage through a solicitor, but didn't set the 2 flats apart - again, they wanted more money for a lease to keep them separate, and she didn't bother.

The uncertainty over the future of the lease (i.e. she could default, die - (hope not!) or whatever) will apparently make the purchase of my flat something of a risk.

Is there anything I can do to get out of this situation? I suppose I could get a lease drawn up for the top flat and so on, but then would need my Mother to convince the lender to alter her mortgage, when they have no incentive to do so. My flat has no mortgage (was paid off due to critical illness policy when I got Leukaemia).

It has been empty for months, and money is literally falling through our hands. Won't bore you with the reasons why it wasn't let (it had been for the intervening 14 years). Save to say it has become a big incumbrance, and we need to sell.

Any advice very gratefully received.

Doozergirl

I don't really understand. I'm sure it's fine for one flat to own the freehold to the entire building and sell one flat off on a lease It would happen in similar circumstances to yours - the house owner splits the building but remains in part of the property; you cannot issue yourself with a lease.

But ordinarily yes, all flats in a building should have a lease, but would have a seperate freeholder. If there is some sort of defect, then it sounds like the defect is with the flat upstairs but causing impact on yours if you do not have the rights of support and protection that a lease affords. I doubt the mortgage company would take umbrance at it being rectified. She will still own everything she owned before.

Have you spoken to the leasehold advisory service? www.lease-advice.org

There's a telelphone number on their website. Government funded, you will get the correct advice.

Richard_Webster

I can't really see what the problem is. If the lease wording is OK then having an occupier as a landlord shouldn't make any difference to the position. If there is anything wrong with the lease wording then your mother can do a deed of variation to put the lease right. Some property companies have mortgages on their freeholds so I can't really see what that has to do with anything...

The Council of Mortgage Lenders (CML) Handbook governs the small print solicitors have to check about legal stuff and the position of a freehold subject to a lease is expressly dealt with in paragraph 5.5.3. The bit in italics is the view of the Halifax. Most lenders just say "Yes", without qualification but Bradford/Bingley/Mortgage Express sat "No" for some reason and HSBC don't subscribe to the CML Handbook so nobody knows what they think!

Other freehold arrangements
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. If the valuer has not referred to the title arrangements in the valuation report, or if a physical inspection report has not been carried out, you must report the arrangements to us so that we can ensure that there are no adverse effects upon the valuation.


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.

So the freehold is OK (and mortgageable) and therefore the lease of the other flat should be OK too - the only difficulties might be if the lease does not contain obligations on the freeholder's part to make sure the whole building is maintained and insured. If that is the case then your mother you do a deed of variation to the lease to deal with this.

scottmcgarvey

Many thanks indeed for the replies - much appreciated. I think the problem is more that she herself has no lease. So the freehold on hers includes mine.

My solicitor also thought it may help if my Mother had life insurance on the mortgage she has on the flat (worth approx £115k, loan is for £22k). She hasn't. She took it out aged about 70, and it is a 35 year mortgage.

I think I understand my solicitor's point - the freehold could be defaulted and then go into the hands of someone else who can mess about with the lease on my flat. But that would happen if my Mother sold hers anyway - the difference between the two - I don't really understand. Solicitor seems fairly certain that solicitors (for potential buyers of my flat) will not like it though?

Doozergirl

Have you found a buyer yet?

Was there a particular reason that you have already spoken to a solicitor regarding the lease before you have sold? It's not really the norm.

I think you should find yourself a buyer and see how it goes. As Richard Webster says, she can create a deed of variation if needed.

I think almost all conveyancing problems have their solutions. Just because somethig is a stumbling block doesn't mean your flat is unsaleable, it might just a bit of extra work. At least if you're on talking terms with your mother, you should be able to get whatever you need.

I have no idea why life insurance on your mother's flat would have anything to do with the sale of yours.

scottmcgarvey

No buyer found. My solicitor asked for the deeds and for a copy of the lease - probably the latter as I explained we didn't have anything set-up yet for maintenance charge or ground rent payment - I had previously just split any repairs with my mother, and she didn't bother with the (nominal) ground rent. That's when it cropped up...

The life insurance angle - my solicitor suggested a buyer (or their solicitor) may feel more comfortable with knowing that if her loan is defaulted or she dies, that the freehold of the flat doesn't end up in a bank's hands - or whoever bought the place at auction or whatever...

Doozergirl

Well it sounds like your lease might not be a repairing one if you 'don't have anything set up'

Has your solicitor said what he thinks should be done about it? I mean, that's what he's there for!

Still not getting the life insurance thing. Umpteen things could happen to the ownership of the property before a life insurance policy might have to pay out. How does a buyer know that your mum isn't the wicked witch of the west anyway?

scottmcgarvey

Doozergirl wrote: »

Well it sounds like your lease might not be a repairing one if you 'don't have anything set up'

Sorry, forgot to say..

Provision is all there in the lease for maintenance charge and ground rent. 50% to be paid by leaseholder. Ground rent £50 pa. But no actual figure for maintenance - so wasn't sure how to go about it (wanted to make sure she isn't "stitched up" once I sell). Solicitor has agreed that the £250 we were thinking of as a figure would seem about right. That's 50% of £500 I should add, not £250 overall - so my Mother will have to contribute £250. There was no ground rent receipts or a/c for the maintenance charge as we 'just dealt with it' - as family.

Obviously that needs to change - and my solicitor will draw up a couple of forms, including a couple which say that I am up to date on payments of rent and service charge - for the HIP (which my solicitor is also handling).

Life Insurance - I don't really understand either - except that if there were some, then it would cover the mortgage. As opposed to the lender coming in, and just banging the property up for auction asap, for not necessarily a decent price (after all, they only need £22k). Then the freehold (including of mine) goes to whoever... So I think it would have just have added some "reassurance" to what is apparently a bit of risk from a buyers solictors point of view.

Have to admit, I still don't quite "get it" - but I suppose most freeholds (for two leasehold flats in a 2 property building) - are not mortgaged?

chappers

You need to think of both flats as seperate to the freehold really although at the moment they aren't as your mothers flat is afreehold flat.
you really need to set up a managemnet company to administer the maintenance of the flat(that could be run by you and your mother) yes by all means set up a flat rate for maintenaence but thats not as far as it goes.
If you decide to repair the roof for example you would have to notify the leaseholder in advance and they would then have to pay half the costs(subject to any appeals they may make) conversely you have an obligation to them say you didn't bother repairing the roof and it was damaging their property they could force you to repair.

Your solicitor sounds like a complete ar5e, how old is your mother now you say she was 70 when she took out the mortgage.How much does he think it's going to cost to find life insurance for a 70+ year old woman. Just get her to rwrite awill leaving the property to whoever she wants, if she was given amortgage at aged 70 I assume she has some sort of income/cash stashed away. when the time comes the 22k loan can just be settled from her estate and if it meeans selling the flat then you just grant another lease to the buyer.

scottmcgarvey

Thanks Chappers

The reason my solicitor had the lease in the first place was to ascertain what was in there - what provision had been made for the service charge. To be fair she has explained as you've said - that an a/c needs to be set-up, and the lease says what she is liable for as freeholder - i.e. - Roof, walls, window surrounds. As we had no arrangement in place, I asked her to help. That is in hand.

With respect to all on here - it seems that no-one seems 'fazed' by the mortgage my mother holds on the freehold of her property (and so mine too). This is ALL that bothers me - I don't want to put on the market now (although I NEED to) - and then encounter this later on, as it would take some time to sort out, and money. I can see (her words) that the lender (for my Mother) has no incentive to change the terms of the mortgage.

Why it would bother a buyer's solicitor, I'm not entirely sure. But she said "Any good solicitor will pick up on it" and that she would...

Richard_Webster

I don't get the point about your buyer's solicitor being worried about your mother defaulting on the mortgage or dying.

There will be thousands of houses converted into flats by small time builders who retain the freehold and later go bankrupt, die, etc and nobody says "Don't buy this flat because the freeholder might go bankrupt..."