Buying Freehold

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    Buying Freehold

    Another question about buying freehold.
    3 flats, two long leases (90+ years) , 1 short lease of 57 years.
    ground rent - £60 and raising in future.

    We have an offer from freeholder to buy the freehold for 52k, where long leases are being asked to pay 4k each and the short lease asked for - 44k.
    properties are in M25 and rough value of the flats are around 700-800k in total with good leases.

    The short lease doesn't want to participate and won't participate the repairs unless there is a solicitors letter or the council notice.

    Freeholder doesn't live in the property and doesn't want to be involved unless there is threat of legal action.

    Leaseholders will have to pay the freeholder costs according to lease.

    With all the changes in the air, should we go and get the freehold and basically use it to get the repairs done?

    ​or shall we sit tight and wait?

    The repairs are fairly expensive and would be around 60-80k.

    There is no sinking fund, or services charges, lease states that the cost of repairs to the property should be born equally by all leaseholders.

    The short lease is a buy to let, mortgaged.
    Thanks

    #2
    The third payments are almost certainly legally service charges. Also, the lease is defective if it doesn't provide insurance, and I don't think the freeholder is going to fund that so there should be service charges for the insurance. If they are not, I would expect all the flats to be unmortgageable.

    The split of the freehold premium between leaseholders seems to be a matter for the leaseholders, not the freeholder.

    If you have misinterpreted the lease, and there are service charges, an RTM is likely to be a better solution, Otherwise, you need some serious legal advice as to whether or not you would have a successful case for forcing a change in all the leases to introduce a proper service charge regime.

    However, you may still find that you are unable to deal with the person with the medium lease without professional help and a lot of tears.

    If you do buy the freehold, do not do so as tenants in common, with the medium leaseholder, as they will be able to veto all your expenditure.

    Comment


      #3
      Originally posted by leaseholder64 View Post

      If you have misinterpreted the lease, and there are service charges, an RTM is likely to be a better solution, Otherwise, you need some serious legal advice as to whether or not you would have a successful case for forcing a change in all the leases to introduce a proper service charge regime.

      However, you may still find that you are unable to deal with the person with the medium lease without professional help and a lot of tears.

      If you do buy the freehold, do not do so as tenants in common, with the medium leaseholder, as they will be able to veto all your expenditure.
      We understand the problem is the medium leaseholder and obtained legal advice re service charges & repairs, which basically confirmed our understanding of the lease - re no service charges, no sinking fund.

      Each flat is self insurable. All the flats have a mortgage, just two of long leases are owner occupiers and the medium lease is the BTL.

      If the short lessee will decide to join us in buying freehold, we will be obtaining further advice as we need the repairs.

      Basically we worry that this will be money down the drain and the main reason for us to make our properties sellable via getting repairs done.


      Comment


        #4
        The property is only ever going to be saleable to cash buyers unless you get all the leases changed to implement a proper service charge and insurance regime.

        By the way, are there any internal common areas and is the building old enough for there to be asbestos?

        Comment


          #5
          Originally posted by Anna1985 View Post
          There is no sinking fund, or services charges, lease states that the cost of repairs to the property should be born equally by all leaseholders.
          Originally posted by Anna1985 View Post
          We understand the problem is the medium leaseholder and obtained legal advice re service charges & repairs, which basically confirmed our understanding of the lease - re no service charges, no sinking fund.
          This doesn't add up.
          You are saying that there is no service charge, and that you have received legal advice which confirms this, but you also say that the lease says that repairs are split equally between the three flats

          If the leaseholders have to pay a share of repairs, that is a service charge.
          What I am guessing you mean is that the leases don't have a clause allowing any amount to be collected in advance, and possibly there are no clauses allowing for recovery of the freeholder's costs of managing the building (e.g. managing agent fees, legal fees for chasing arrears, etc.).

          If this is the case, then buying the freehold may not be the best course of action if you already know that one of the three leaseholders doesn't want to pay out any money (meaning it may be very difficult, and potentially costly, to get them to pay their share.


          What does the lease say about the freeholders responsibilities? And does it allow legal fees to be added to the service charges?
          If the lease makes it clear that the freeholder is responsible for the repairs that are needed, but doesn't allow costs of chasing arrears to be recovered, it might be better to try to take action to force the freeholder to do the necessary repairs (leaving them with the problem of how to get the third leaseholder to pay his share) rather than buying the freehold and then finding that two of you have to fund all of the repairs and take the third leaseholder to court to recovers share.

          Each flat paying for insurance separately might also be a problem - it's generally better to have the block insured under one policy.
          I think that you need your leases looked at carefully to see whether there are more problems with them than you think.

          Comment


            #6
            If it were me, I would join forces with the other willing leaseholder and buy the freehold between the two of you and remove the freeholder form the equation.

            You can either go down the enfranchisement route with the other willing leaseholder and buy the freehold between the two of you, and cut out the freeholder from the equation (more information here: https://www.lease-advice.org/advice-...tting-started/) or just accept the freeholders offer buy the freehold for £26k each (£52k total).

            I assume the best way to do this would be to start a company, of which both of you are shareholder and both of you are directors.

            Once you have the freehold, you can vary the lease to include provision regarding service charges, which include a sinking fund or provisions to demand funds upfront for major works. You need to make an application to the first tier property tribunal under Part 4 Section 35 of the Landlord and Tenant Act 1987 (details here: https://www.lease-advice.org/faq/in-...vary-my-lease/)

            Once you're comfortable with the changes to the lease, the freeholder (i.e. you and the other willing flat) can then start works on the block. You would need to follow the Section 20 process for major works, whereby you inform all leaseholder that you intend to do works, why the works need to be done etc. and that the costs will be split equally between the three flats (details here: https://www.lease-advice.org/faq/wha...r-major-works/)

            If the leaseholder who is on the shorter lease refuses to pay for the works, then you will have to go to the First Tier Property Tribunal for them to judge if the charges are due (which they should be if your Section 20 has been done properly, including an independent survey etc.) and that the payments are due. I'd assume the unwilling leaseholder would then pay their share, but if they refused, you go to the County Court.

            Comment


              #7
              Originally posted by leaseholder64 View Post
              The property is only ever going to be saleable to cash buyers unless you get all the leases changed to implement a proper service charge and insurance regime.

              By the way, are there any internal common areas and is the building old enough for there to be asbestos?
              Our solicitor didn't pick it up as an issue. I could find out from the 2nd leaseholder as well, but don't think so. 3rd one is also mortgaged.
              There are no common areas, there is right of passage from the ground floor with the ground floor belonging fully to downstairs, 1st floor - 1st floor and top floor self contained as well.

              I don't believe there is no asbestos as surveyor didn't pick it up as an issue.

              Comment


                #8
                Originally posted by Macromia View Post
                If the leaseholders have to pay a share of repairs, that is a service charge..
                The get out is this sub-clause in 1985 L&T S18:

                (2)The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable.
                If the tenants buy the work without involvement of the landlord, it isn't a service charge. However, I'm surprised that anyone would lend on such a property because there is really no way of ensuring the work gets done properly.

                If I understood correctly, the means of escape for the upper flats goes through an area demised to the lower flat. That doesn't seem desirable from a safety point of view. I'm not sure where the responsibilities lie, but someone is probably responsible for emergency lighting.

                Any building built in the 1970s ore earlier is likely to contain asbestos.

                This layout suggests a conversion. If the conversion was pre-1991, there may be a section 257 HMO depending on the number of remaining owner occupiers.

                Comment


                  #9
                  Originally posted by Macromia View Post
                  according to lease: the expense of maintaining the building, blah, blah shall be borne in equal shares by the tenants

                  To pay all expenses (including solicitors costs and surveyor fees) incurred by freeholder in preparation of notice under s146,147 under act 1925.

                  That the tenant paying the rent and other monies hereby reserved and made payable and performing and observing convenants shall peacefully hold the demised premises

                  At the request and expense of the tenant ( for which proper security shall be given ) (the landlord) to take such steps as shall reasonably be necessary to enforce any covenant to repair or contribute to the cost of repair on the part of any tenant or any other maisonette in the said building.

                  No, there is no obligation on the freeholders part to do repairs, only in the case if any of the flats doesn't have to contribute for repairs for any period or at all.

                  That was our orginal hope that we can sue freeholder for the repairs, we could but only to force the freeholder to start legal action against non complayent leaseholder.



                  Comment


                    #10
                    Is there a covenant requiring the leaseholders to insure their part of the building? If not the lease is so defective that you should be able to force a change with respect to insurance without agreement from anyone else, except the tribunal. I would say that covenant needs to be with the other leaseholders, not just the freeholder.

                    Comment


                      #11
                      Originally posted by manchesterpat View Post
                      If it were me, I would join forces with the other willing leaseholder and buy the freehold between the two of you and remove the freeholder form the equation.

                      You can either go down the enfranchisement route with the other willing leaseholder and buy the freehold between the two of you, and cut out the freeholder from the equation (more information here: https://www.lease-advice.org/advice-...tting-started/) or just accept the freeholders offer buy the freehold for £26k each (£52k total).

                      I assume the best way to do this would be to start a company, of which both of you are shareholder and both of you are directors.

                      Once you have the freehold, you can vary the lease to include provision regarding service charges, which include a sinking fund or provisions to demand funds upfront for major works. You need to make an application to the first tier property tribunal under Part 4 Section 35 of the Landlord and Tenant Act 1987 (details here: https://www.lease-advice.org/faq/in-...vary-my-lease/)
                      that the payments are due. I'd assume the unwilling leaseholder would then pay their share, but if they refused, you go to the County Court.
                      Yes, this is exactly what we are thinking. The question is whether we would be able to recover the monies in case the leasehold reform goes ahead. Is 52k good money or way to expensive.

                      Thank you for pointing out re lease variation, will have a look

                      Comment


                        #12
                        The expense of maintaining the building shall be borne in equal shares by the tenants - but who does the lease say is actually responsible for getting the repairs done?

                        If the lease doesn't specify this it is definitely defective because the requirement for the tenants to share the cost of maintenance is irrelevant if no one is required to arrange any work and thereby incur any costs.

                        Comment


                          #13
                          It looks like you effectively already have the right to enforce repairing obligations as the freeholder is required to act as your puppet. I'm not convinced that buying the freehold, on its own, will improve on that.

                          Comment


                            #14
                            Don't expect to be able to get a lease variation that allows a sinking fund to be created, or service charges to be demanded in advance - if the lease makes adequate provision for recovery of expenditure (even if this is only in arrears), variations to allow sinking funds/advance payment would almost certainly have to be agreed by all leaseholders.

                            Comment


                              #15
                              Originally posted by leaseholder64 View Post
                              It looks like you effectively already have the right to enforce repairing obligations as the freeholder is required to act as your puppet. I'm not convinced that buying the freehold, on its own, will improve on that.
                              So far the landlord doesn't want to sue anybody or to send a notice of repairs - the only way for us to make him do it to take him to court to take other leaseholder to court.

                              it is basically a toothless threat unless we sue

                              Comment

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