Buying a house with BOTH Freehold and Leasehold titles?

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    Buying a house with BOTH Freehold and Leasehold titles?

    Hi
    I wonder if you can help with some advice.

    My relative is purchasing a property which we were told is 'definitely freehold'. He claims he purchased the freehold a few years ago.

    However, we have now discovered this is not fully true and while he did purchase the freehold, the leasehold interest still exists, and so the sale would be for BOTH titles. We are concerned about this for several reasons (not least because it is not true that we are only purchasing a FH property).
    We have confirmed that both the LH and FH interests pertain to exactly the same plot of land (i.e. it is not a property in which the driveway is leasehold, house freehold etc). Both titles are title absolute. The LR lists both titles and you can download a copy of the title register for both.

    We therefore have these questions:
    1. Under normal circumstances, when someone buys the freehold to their leasehold house, what happens to the leasehold title (I assume it is automatically, or normally, extinguished so that only the freehold title exists)?
    2. What would the typical reason be for maintaining the leasehold interest when the individual purchases the freehold interest of their home and has no intention to leasing the property to anyone?
    3. Is it possible the leasehold title was mistakenly not extinguished/merged with the freehold title when the seller purchased the freehold interest a few years ago, either because of a miscommunication or the solicitor didn't correctly inform the LR etc (the seller claims he didn't know both titles still exist and thought he had purchased the freehold as per typical circumstances)?
    4. I am aware that under some circumstances the leasehold interest may have rights/easements/obligations/covenants that are not contained with the FH interest that would be beneficial to keep or difficult to simply extinguish, i.e a right of access to a path, or an obligation to pay for common areas that for whatever reason is not contained in the FH interest. However, if it is determined that there is no such differences and all rights/obligations are the same as in the FH interest, is there any other reason why you wouldn't want them merged?
    5. What are the downsides of NOT merging or extinguishing the leasehold title, and instead purchasing BOTH the FH and LH titles to the exact same property/land? Could mortgage lenders not want to lend as it has two different titles? And could it increase costs for mortaging, insurance, LR costs etc? Do you agree it makes sense to merge them if the LH is effectively redundant?
    6. What are the typical costs/process of merging the LH and FH interest before the sale to my relative who will be the new owner (i.e is it a simple application to the LR, or does it require the courts)?
    Any help appreciated, thank you

    #2
    First, you can be reassured that there are no problems with owning both the leasehold and freehold titles to the same property. The assertion that the property is definitely freehold is not misleading as it is perfectly true and there is no disadvantage in also having a leasehold title. If you are your own landlord and your own tenant you are not going to cause yourself a problem!

    To answer your questions:

    1. If a tenant buys the freehold there is no automatic merger of the leasehold interest into the freehold interest. There are very good reasons for this which I shall be happy to explain if you wish.

    2. Assuming that the leasehold interest is not subject to a mortgage, the main reason for not merging the leasehold interest (as you say in question 4) would be that the leasehold interest has some benefit attached to it which the freehold does not. No long lease should be merged without an investigation to confirm that no rights will potentially be lost. A court case confirmed that this would not be a problem with rights of way and the like, but the position may be different with other benefits. Since there is no harm in maintaining the leasehold interest, doing so ensures that no rights are lost - though of course the time will come when the lease expires.

    3. See 1 and 2.

    4. See 1 and 2. If a thorough investigation reveals no rights will be lost, then by all means merge the leasehold interest.

    5. There are no real downsides, only imaginary ones.

    6. A declaration of merger can be made in the transfer of the two titles. No additional fee is payable if merger is effected this way.

    Comment


      #3
      Hi Lawcruncher, thank you for the thorough response.

      Please expand on point one. From my previous understanding (non-expert), I thought that in the majority of cases where the freehold reversion of a leasehold house is purchased, the LH interest would typically be merged so that only one FH title subsists (and it would be abnormal for it not to be merged/extinguished unless there were additional rights/obligations as you say in the LH title). Is it not therefore true that in the majority of cases when one 'buys their freehold' to their house, this would happen (the seller didn't even know the LH interest still existed he claims)?

      We will get the solicitor to determine if we would lose any rights/easements etc if we terminated the LH title. However, both titles have the same mortgage registered against them.

      In regards to there being no problem in purchasing both titles, we see the problem as this: the leasehold title (if it literally does not offer any benefits to us compared with the FH title) would essentially be redundant and only exist to: 1) complicate matters in handling two different titles to one essential property, 2) possibly affect future sellability as mortgage lenders might not want to lend on LH titles or properties with two titles, and public are becoming more weary of leasehold titles in general, and 3) affect future costs in relation to conveyancing, LR fees, insurance etc in dealing with double the paperwork/two titles (these are assumptions). We would much rather have a cleaned-up title if it is true the LH interest on this property is essentially redundant.

      Lastly then, if we determine that the LH is redundant and can be extinguished, would it be reasonable/beneficial to us to request the seller does this BEFORE we exchange contracts, or should we ask our solicitor to do it with the LR after this?

      Many thanks again

      Comment


        #4
        Originally posted by trusaiyan View Post
        Please expand on point one. From my previous understanding (non-expert), I thought that in the majority of cases where the freehold reversion of a leasehold house is purchased, the LH interest would typically be merged so that only one FH title subsists (and it would be abnormal for it not to be merged/extinguished unless there were additional rights/obligations as you say in the LH title). Is it not therefore true that in the majority of cases when one 'buys their freehold' to their house, this would happen (the seller didn't even know the LH interest still existed he claims)?
        I cannot say how usual it is to find cases where the freehold and leasehold titles have not been merged. I only worked in areas where long leasehold houses were unusual. Despite the case referred to above, either through an abundance of caution or because the client wants to save costs, it would not surprise if in many cases a decision is made not to merge.

        Originally posted by trusaiyan View Post
        We will get the solicitor to determine if we would lose any rights/easements etc if we terminated the LH title. However, both titles have the same mortgage registered against them.

        In regards to there being no problem in purchasing both titles, we see the problem as this: the leasehold title (if it literally does not offer any benefits to us compared with the FH title) would essentially be redundant and only exist to: 1) complicate matters in handling two different titles to one essential property, 2) possibly affect future sellability as mortgage lenders might not want to lend on LH titles or properties with two titles, and public are becoming more weary of leasehold titles in general, and 3) affect future costs in relation to conveyancing, LR fees, insurance etc in dealing with double the paperwork/two titles (these are assumptions). We would much rather have a cleaned-up title if it is true the LH interest on this property is essentially redundant.
        I do not see any of the above as a significant problem.

        Originally posted by trusaiyan View Post
        Lastly then, if we determine that the LH is redundant and can be extinguished, would it be reasonable/beneficial to us to request the seller does this BEFORE we exchange contracts, or should we ask our solicitor to do it with the LR after this?
        It will only hold up proceedings and is not necessary. All that is needed in the transfer to your friend is a declaration of merger, which is no more than two lines.

        Comment

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