Possible to amend freehold to separate from owner of leasehold?

Collapse
X
  • Filter
  • Time
  • Show
Clear All
new posts

  • Possible to amend freehold to separate from owner of leasehold?

    Hi
    I hope you can help.
    I live in a house which has been coverted into 3 flats. The freehold of the building is split between me and one of the other flats; we each hold one share.
    The owner of the third flat has 70 years left on his lease. We have pointed out to him that it is in his best interest to extend the lease sooner rather than later, however he does not want to extend the lease in the immediate future. I am planning on selling the flat shortly, to move to a larger property. I am keen to realise the value in the freehold (from the 3rd flat extending their lease), however since it does not seem possible to do this whilst living in the flat I am hoping to instead sell the flat as a leasehold (it has approx 990 years on it's lease, so as I have been informed should in theory get the same value on the open market as share of freehold flat) and retain the freehold until such a time as the owner of the 3rd flat chooses to extend the lease.

    Currently the Articles of association state that:
    …..no shares in the company may be issued or transferred to or be held by a person other than an Owner. No person may hold more than one share for each property of which he is an owner….

    An owner is defined in the Articles of Association as; 'Any person who is a holder of a Head Lease of a house, flat, maisonette, dwelling or garage or block of garages and has entered into an agreement with the company in respect of that property'


    I read in a previous post that it is possible to amend the Articles of Association, though it is not possible to amend the requirements. I am not entirely sure what constitutes a requirement, but do you think that it would be possible to amend the definition of owner for example to state along the lines of 'Any person who is a holder or former holder of a Head Lease…..' and thus be able to retain the share of the freehold and sell the house as leasehold?
    Or if not any other ideas on how I could retain the interest in the freehold? I will of course seek legal advise but it would be very helpful to have your thoughts.
    I have spoken to the owner of the second share and he has in principal agreed to the idea of this amendment.

    Many Thanks

  • #2
    The third flat may not ever decide to extend the lease so you may be waiting a very long time to realize the value. I also think that the situation you suggest would be undesirable to potential buyers. What would happen if they wanted a share of the freehold?

    Comment


    • #3
      The best bet may be to sell as is ?

      Is owning the freehold a real source of income ?, many would find it a pain !

      Andy
      Advice given is based on my experience representing myself as a leaseholder both in the County Court and at Leasehold Valuation Tribunals.

      I do not accept any liability to you in relation to the advice given.

      It is always recommended you seek further advice from a solicitor or legal expert.

      Always read your lease first, it is the legally binding contract between leaseholder and freeholder.

      Comment


      • #4
        Although the owner of the 3rd flat does not want to extend the leasehold immediately, they have indicated that they would like to do so in the not too distant future, hence I would like to be able to benefit from that (and I dont think that I would get the same value from a potential buyer of my flat, since from their angle it would be more of a wildcard). From the calculations tht I have done online I estimate that it may cost the 3rd flat around £20,000 to extend their lease (so effectively my share is worth around £10K, therefore I think it was worth trying to retain this benefit).

        Comment


        • #5
          What is the current market value and ground rent of flat 3 ?

          Perhaps if you pointed out to flat 3 that mortgages are difficult to obtain for leasehold flats falling below 70 years and cost of lease extension may be rising more quickly,he may be willing to extend now rather than do it later at higher cost.

          Comment


          • #6
            Perhaps they don't have £20 000 for the lease extension, hence their hesitation.

            Comment


            • #7
              I believe it may be possible for you and your co freeholder to grant yourselves a 999 year lease at a peppercorn rent of Flat 3 which starts when the old lease expires. This is registered at the land registry and you then sell your share of the freehold company for a £1. when Flat 3 wants a lease extentsion then terms to expunge your interest will need to be agreed so you will then get your share

              Comment


              • #8
                Thank you, granting a future dated lease sounds an interesting idea, will investigate further.

                Comment


                • #9
                  Originally posted by Helen80 View Post
                  Thank you, granting a future dated lease sounds an interesting idea, will investigate further.
                  I am sorry but that is unlikely to work and you are under a fundamental misunderstanding over your ownership.

                  This will work.


                  You own the flat under a lease and a share in the company that owns the freehold, while related they are two entirely different ownerships. If you cease to be an owner no matter what you do with flat 3 you aren't entitled to the rewards.

                  What you can do is
                  1: extend your lease if necessary and
                  2: then grant an under lease of the flat ( I suggest 999 years at a peppercorn for you, and 125 years at ground rent comparable locally to be sold) and
                  3: where the under lessee covenants directly with the company to pay the service charge direct.

                  You need not invite them, nor are they entitled to a share in the freehold company.

                  That way you can reap the sale of lease extension on flat 3 and in due course sell the head lease on your flat to the underlessee or AN other.
                  Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                  Comment


                  • #10
                    Thank you for your reply, that is very interesting. I wondered if I did arrange a sub-lease (for the same period as the existing lease ie approx 990 years), does this have any negative impact on the potential market value of my flat? Or is this likely to be viewed no differently to a head lease of ~990 years?

                    Also, I wondered if you knew the CGT implications, since I own the flat jointly with my partner, when flat 3 does eventually extend their lease would we both be able to apply our annual CGT allowance to minimse any tax? Is there also likely to be any income tax due?

                    Many Thanks for your help

                    Comment


                    • #11
                      Originally posted by Helen80 View Post
                      Thank you for your reply, that is very interesting. I wondered if I did arrange a sub-lease (for the same period as the existing lease ie approx 990 years), does this have any negative impact on the potential market value of my flat? Or is this likely to be viewed no differently to a head lease of ~990 years?

                      Also, I wondered if you knew the CGT implications, since I own the flat jointly with my partner, when flat 3 does eventually extend their lease would we both be able to apply our annual CGT allowance to minimse any tax? Is there also likely to be any income tax due?

                      Many Thanks for your help
                      If you retain a head lease to flat 1 and sell an under lease the difference in value between them is relatively small irrespective of the difference in term ( no of years). The main determinant is ensuring that the leaseholder covenant to pay SC with the freeholder.

                      it is the long term issue of your head lease, you will want to get rid at some point and if the underlessee has no real advantage in buying it to get another few years, you need to create an incentive for him or an investor. the prospect of the sale of a lease extension and a decent ground rent means that an investor may well pick it up and the UL has real gain if they buy it, a 990 year plus lease and no ground rent!

                      The root problem is that you were poorly advised, the articles should have allowed for the repayment of the loan and capital gain from the unsold lease extension while allowing you to leave. That can be a tidy sum that the new owner has as a windfall. It's not uncommon.

                      The alternative is to amend the articles so that you and the other flat do have a different class of share which you retain but you put that into the hands of others to resolve in due course. That is still worth exploring as you are going to exclude a resident from management and still be saddled with the involvement and responsibility.

                      In an ideal world if the lease extension is worth £10000 you try and get the new owner to pay £5K and buy you out.


                      As to tax the company will have to pay corporation tax and then pay the amount to the shareholders at which point I desperately hope the articles allow payment of a divided or profit otherwise you need to be knocking on the door of your solicitor who acted on the freehold acquisition as they treated it as a conveyancing exercise not an acquisition.

                      The income is then subject to any tax liability as income from rent or other sources; remember you do not own the freehold, simply a share in a company that does.
                      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                      Comment

                      Latest Activity

                      Collapse

                      Working...
                      X