Exchange and completion of leasehold flat without freeholders consent

[trumplt2]

I am a co-freeholder of a block of 3 flats, along with one other person. One of the flats is leasehold only and the owner is not on the freehold. It was recently repossessed and was bank owned, however a new buyer exchanged contracts last week. This week they are due to complete on said flat. This was surprising to me since:

1. There are significant service charge arrears (over £10k), which I have an open court claim in progress against the bank for. I don't think the new buyer is even aware of the service charge arrears. I am unclear if the new buyer will take on this debt, if a new claim needs to be raised against him for these arrears, which delays the whole thing again and I am not sure if he can even challenge it, since he was not the owner at the time?
2. I have not agreed to or even been aware that an exchange would take place. Should I not be required to consent to this, or does it not involved any change to the lease if it is purely a new buyer? Do I not need to agree to the completion? The estate agency have just 'told' me it will happen.
3. The new buyer will probably want to extend the lease at some point as there is less than 65 years left. Will they need to wait 2 years before they can issue the request to extend or can this be waived, for an additional premium to me? Will they need to live in and occupy the flat personally for 2 years to be able to do this, or can they do this if it is rented out for 2 years?
4. I understand the new buyer wants to, post completion, subdivide the flat into two flats. Will he need my freeholder permission to do so and will I be entitled to a premium for this if so how is that calculated or agreed? Will he also need planning permission? Will it need a further change to the lease?
5. Will the new buyer be entitled to request to be added to the freehold? If so, how does that work, what does he need to do and will he need to pay a premium to do this?

Sorry for all the questions, but it's a complex area. Any help MUCH appreciated. Thank you in advance.

[Section20z]

1.I would expect the bank to pay these.
2. Properties sell all the time without freeholders knowledge
3.They just need to own the flat 2 years before applying for a statutory extension but they can ask the Freeholder for an informal extension at any time
4.yes to all, premium can be calculated by a surveyor .
5.he will need to buy into a share of the freehold

[trumplt2]

Thank you so much for your kind reply. A few other clarification questions if I may:

1. The new buyer has said they will 'look at the service charge arrears' but no guarantee they will pay them. Should I not have had the opportunity to enforce payment prior to exchange or completion?
2. They did complete (apparently), but I have not been served, nor asked to sign, any notice of assignment, and neither has the other freeholder. How can completion legally take place without this being issued and signed since the flat sold as leasehold? I have not received any formal documentation to confirm who the buyer even is except from the estate agency.
3. Will they need to live in and occupy the flat personally for 2 years to be able to do this, or can they do this if it is rented out for 2 years?
5. Will he be ENTITLED to buy into the freehold though or can I veto this? Will he need to pay a premium for this as well and if so is this calculated also by a surveyor?

[Macromia]

1. The seller is generally considered responsible for any service charge (or ground rent) arrears, which is why any decent solicitor acting for the buyer of a leasehold property will ensure that a sufficient 'retention' of the sales proceeds is retained to pay outstanding service charges.

The problem for buyers is that there is the potential for any service charge arrears to be enforced against the value of the lease (i.e. threat of forfeiture) instead of the potentially more difficult course of action that involves pursuing the buyer for previously incurred costs.
It is the seller (the Bank) who should be pursued for payment of arrears, and if court action has already been started, they should continue to be pursued, but it is often the buyer who is actually pursued (although demands that are sent after a flat has been sold will usually be considered the buyers responsibility, even if they refer to costs incurred before a property is sold).
If arrears remain unpaid you effectively have a choice as to whether to pursue the seller or to consider using the threat of forfeiture to try and encourage the buyer to settle the debt (if you haven't already done anything that would waive the possibility of forfeiture).


2. I don't think that the sale of a leasehold flat requires freeholder consent (unless it says that it does in the lease). I believe that the best you can do is to refuse to acknowledge the transfer so that you can continue to pursue the seller for the debt - although I could be wrong.


3. It is only necessary to own the leasehold for two years in order to be entitled to a statutory lease extension.


5. There will be no entitlement to buy into the freehold in your situation (again, unless this right is mentioned in the lease).

[trumplt2]

Macromia, thank you so much, very helpful indeed. :-)

1. Where you say 'if you haven't already done anything that would waive the possibility of forfeiture' do you mean if I have not already threatened forfeiture against the new buyer (completion has already taken place), that I can't now? That seems strange if so, when was I supposed to have done this?

2. What is the purpose of the notice of assignment? My understanding is this makes the transfer of the lease 'legal'. Lease Advice told me it was impossible for completion to take place without this being signed by one of the freeholders and neither of us have. So either I have misunderstood their point or there is some other loophole that the seller used to get around this?

[Macromia]

1. In any situation where a freeholder considers it necessary to pursue forfeiture of a lease it is important for them not to do anything following the lease that implies that they are allowing the lease to continue. This would include continuing to send invoices for service charges or ground rent. You would have to speak to a lawyer who is suitably informed regarding leasehold law to confirm that this hasn't happened.

2. The purpose of a notice of assignment is to inform the freeholder who now 'owns' the lease (i.e. to tell them who should be sent any further demands for service charges or ground rent, and who should be pursued if any legal action is taken).
I believe that you can refuse to acknowledge any assignment of the lease if their are outstanding debts (although you should get legal confirmation that this is correct). If you refuse to acknowledge transfer you should still have the potential to pursue the seller with the threat of forfeiture (if you haven't already done something that would prevent this). If you agree that the buyer is now the owner of the lease, you will have waived any potential for forfeiture because the debts were accrued before you acknowledged the transfer of the lease to them. What you might be able to do is write to the buyer informing them that you will not acknowledge transfer of the lease until all service charges etc. are up to date, and may be seeking forfeiture of the lease against the sellers (again, my understanding of what you can do may be wrong, so you may need to pay for proper legal advice).

Completion of the sale of a lease is different from the freeholder acknowledging transfer of a lease.
It's not an exact analogy, but this is similar to the way that ownership of a car can change without the DVLA acknowledging transfer of registered keeper.
If you sell a car but don't inform the DVLA that transfer has taken place, you can potentially remain legally liable for things like speeding fines and parking tickets.