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benjus
Posts: 5,433 Forumite
I have posted about this before, but the situation has changed a bit so I thought I'd ask again if anyone can offer any advice.
I live in a leasehold flat in a building containing 6 flats. The lease states that ground rent is payable to a party known as The Company, which was originally the management company for the building and was/is not the same entity as the freeholder. The lease also contains a clause allowing the freehold to be sold to The Company shortly after the sale of the leases, but this option was not exercised.
We acquired Right To Manage some years ago and set up a management company.
About 18 months ago we received notice that the freeholder wished to sell the freehold (reversionary interest), and we decided to exercise our right to first refusal. This has just completed so the company that we formed to own the freehold is now the freeholder.
We have had an expert opinion that our freehold company can issue new leases of any length, but the old lease will continue to exist in the background, in that the obligation to pay ground rent to The Company will continue.
However, I'm wondering what would happen if we were to exercise the statutory process for lease extension to extend the lease by 90 years and reduce the ground rent to peppercorn. The ground rent is not huge, but it resets to 0.083% of the lease value every 25 years, so it's not negligible either.
I assume that we would have to compensate The Company for their loss of ground rent income, but I'm not sure how this would work if it is not the freeholder, and if this process could offer a loophole to get out of the ground rent obligation, so much the better.
Any thoughts?
I live in a leasehold flat in a building containing 6 flats. The lease states that ground rent is payable to a party known as The Company, which was originally the management company for the building and was/is not the same entity as the freeholder. The lease also contains a clause allowing the freehold to be sold to The Company shortly after the sale of the leases, but this option was not exercised.
We acquired Right To Manage some years ago and set up a management company.
About 18 months ago we received notice that the freeholder wished to sell the freehold (reversionary interest), and we decided to exercise our right to first refusal. This has just completed so the company that we formed to own the freehold is now the freeholder.
We have had an expert opinion that our freehold company can issue new leases of any length, but the old lease will continue to exist in the background, in that the obligation to pay ground rent to The Company will continue.
However, I'm wondering what would happen if we were to exercise the statutory process for lease extension to extend the lease by 90 years and reduce the ground rent to peppercorn. The ground rent is not huge, but it resets to 0.083% of the lease value every 25 years, so it's not negligible either.
I assume that we would have to compensate The Company for their loss of ground rent income, but I'm not sure how this would work if it is not the freeholder, and if this process could offer a loophole to get out of the ground rent obligation, so much the better.
Any thoughts?
Let's settle this like gentlemen: armed with heavy sticks
On a rotating plate, with spikes like Flash Gordon
And you're Peter Duncan; I gave you fair warning
On a rotating plate, with spikes like Flash Gordon
And you're Peter Duncan; I gave you fair warning
0
Comments
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Am I correct in understanding that currently each of the owners of the 6 flats is an equal shareholder in a limited company that now owns the freehold?
In this case, provided all 6 agree, you can extend and amend your leasehold term, ground rent and service charge to your hearths content.0 -
Am I correct in understanding that currently each of the owners of the 6 flats is an equal shareholder in a limited company that now owns the freehold?
Well actually it's between 5 of us as one of the flat owners decided not to participate, but you're basically correct.In this case, provided all 6 agree, you can extend and amend your leasehold term, ground rent and service charge to your hearths content.
Apparently that's not the case, according to the expert that we consulted (we got together with a couple of other blocks on the same site and consulted a specialist barrister) - because of the way our lease is worded to pay ground rent to a specific party rather than to the freeholder, we can't just write off the obligation to pay ground rent to The Company.
However he did not give an opinion on using the statutory lease extension process, so I was wondering if that could give us a loophole.Let's settle this like gentlemen: armed with heavy sticks
On a rotating plate, with spikes like Flash Gordon
And you're Peter Duncan; I gave you fair warning0 -
However, I'm wondering what would happen if we were to exercise the statutory process for lease extension to extend the lease by 90 years and reduce the ground rent to peppercorn. The ground rent is not huge, but it resets to 0.083% of the lease value every 25 years, so it's not negligible either.
Assuming you qualify for a statutory lease extension, the 'ethos' of the legislation is...Whatever the circumstances, the leaseholder can extend their lease by 90 years and reduce their ground rent to zero (in return for paying the appropriate premium).
And as long as the leaseholder pays, it's for The Company and The Freeholder to sort out the how the money is split.
But in this case it splitting the money sounds fairly straightforward...
- The Company gets the compensation for loss of ground rent
- The Freeholder gets the compensation for loss of reversion
A lease extension valuer will be able to calculate that split.0 -
[FONT=Verdana, sans-serif]What is the legal status of The Company. Are they a head-leaseholder? Are they performing any useful function other than collecting (and keeping?) the ground rent? What is the legal relationship between the freehold owning company and The Company?[/FONT]0
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Assuming you qualify for a statutory lease extension, the 'ethos' of the legislation is...Whatever the circumstances, the leaseholder can extend their lease by 90 years and reduce their ground rent to zero (in return for paying the appropriate premium).
And as long as the leaseholder pays, it's for The Company and The Freeholder to sort out the how the money is split.
But in this case it splitting the money sounds fairly straightforward...
- The Company gets the compensation for loss of ground rent
- The Freeholder gets the compensation for loss of reversion
A lease extension valuer will be able to calculate that split.
Thanks - that seems pretty much as I thought. The freeholder should waive any premium as it would only come back to us anyway as shareholders in the freehold company, so it's just a matter of calculating the compensation for The Company.
I guess that invoking the statutory process is the only way I could force The Company to give up the right to receive ground rent - if the freehold company were to simply issue a new lease I guess The Company could refuse to give up the right to receive ground rent. Although I guess it would be worth asking them first as it may work out cheaper to do it that way.Let's settle this like gentlemen: armed with heavy sticks
On a rotating plate, with spikes like Flash Gordon
And you're Peter Duncan; I gave you fair warning0 -
[FONT=Verdana, sans-serif]What is the legal status of !!!8220;The Company!!!8221;. Are they a head-leaseholder? Are they performing any useful function other than collecting (and keeping?) the ground rent? What is the legal relationship between the freehold owning company and !!!8220;The Company!!!8221;?[/FONT]
The Company is named on the lease as the recipient of ground rent. That's it - they are not a head-leaseholder, they perform no function at all, there is no legal relationship between The Company and the freeholder (there might have been when the leases were originally drawn up, but we own the freehold now).Let's settle this like gentlemen: armed with heavy sticks
On a rotating plate, with spikes like Flash Gordon
And you're Peter Duncan; I gave you fair warning0 -
[FONT=Verdana, sans-serif]All six leaseholders will need to serve a S42 if you want to extinguish the rights of The Company completely, do they all qualify and want to participate?[/FONT]
[FONT=Verdana, sans-serif]I guess you would need to serve a copy of the S42 notice on The Company and include in the notice a separate price for The Company's interest as well as the lease extension price to the freeholder.[/FONT]
[FONT=Verdana, sans-serif]Its not clear whether The Company would then be able to serve a notice of separate representation, like a head-leaseholder would. You might need your legal expert to advise to make sure you get the process right.[/FONT]0
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