Shared freehold lease extension questions

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    Shared freehold lease extension questions

    Hi All,

    I own a flat in a house where a company (us) owns the freehold and manages the repairs, insurance etc. 5 flats in total.
    One of us wants to sell but she's having problems since there are only 66 years left on the lease so we need to extend the lease. So far we all seem to agree since it will benefit all of us in the long run. What worries me is that a couple of flat owners are a bit skint, have no intention to sell, have no children and will be deceased by the time the lease runs out, hence they have really no interest in extending the lease.
    My question is: can we overrule them? And if we can't, can the 3 other flats go ahead with the lease extension on their own? I don't think the uninterested parties would withold consent, they are just keen to avoid what they believe an unnecessary expense.
    Also how much are the legal fees per flat likely to be?
    Out of curiosity, a few years back another flat was sold but we didn't have any of these problems. Why now?

    Thanks

    #2
    The Council of Mortgage lender have a policy not to offer mortgage loans if the remaining term on the lease falls below 70years. If your future buyer cannot get a mortgage then the value of your property rapidly falls below market value.

    So its best if all flats now down to 66 years can together extend their leases to 999 years and share the legal costs between 5 flats. The company can offer the lease extension if 3 out of 5 shareholders vote in favour. The 2 flats which are short of funds can be a problem but you need to explain the situation to them .

    Comment


      #3
      Can I assume that all five flats, and that there are only five flats, are owners of the company? If so then they have two choices

      1: grant individual extensions at the full premium and pay out the proceeds to the five shareholders/members or
      2: As everyone purchased the freehold via the company then 1 is merely a matter of exchanging funds and incurring tax in the process, so you grant them at no cost plus legal costs.

      Now there may be an argument from those who have no need for an extension and see a chance to make a tidy sum say 1/5th each of the premiums, but they should understand that the principle having been established means that when they or their estate come to sell their leases may be worth very little, hard to sell to a conventional purchaser due to lack mortgagees, and most importantly the premium will likely wipe out any value of the property to them or their estate and the beneficiaries.

      Now this should have been resolved at freehold purchase but it often is not- so unless any of the discussions or documentation covered sales of leases at the time of purchase, I suggest our well established method

      1: you pay for the above advice with valuation figures to illustrate
      2: draft resolutions for an extraordinary general meeting to decide one or other ( sell at nil or at a premium, either with them bearing the costs).

      Hope that helps.
      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


        #4
        Thanks guys.
        There are indeed just 5 flats. I don't think the possibly recalcitrant owners are aware of the potential money spinning excercise but then again they can find out just as I did.
        Any idea what reasonable legal fees should be? If possible we would sell at nil probably avoiding valuation fees. If it helps the combined value of the 5 flats is about a million pounds.
        Thanks

        Comment


          #5
          We paid £250 + Vat per flat to extend all 5 leases in a share of freehold in 2010. All used the same solicitor. There was also the charge of obtaining the lease per flat from land registry £20 + registering the deed at Land Registry (about £90) but this now depends on the value of the flat.

          Comment


            #6
            If the 5 leasehold flat owners own the freehold, then your company should grant new 999 year leases at NIL premium because any income received would be liable to company tax. It makes no sense to create a tax situation on your own money paid into freehold company and then distributed back after tax.

            The increase in value of the flats ( with 66 years lease ) replaced by 999 years lease ( at peppercorn ground rent ) may add 15-20 % but your local estate agents can give more valuation.

            Comment


              #7
              Really up to the other two whether they bother - their problem if they don't.

              You can point out to them that the present flatowner/company members will happily agree to a lease extension for them at no cost beyond the legal costs involved but if they leave it and years down the track, different people are in charge, they might want a substantial premium for the extensions and there would be little that the 2(being in a minority) could do about it.

              (This is a good illustration of why LeaseholdAnswers is seeking the person who invented "shared freehold". A lot folk out there think they are entitled to a free lease extension because they are "SHARED FREEHOLDERS". That is just not the case legally.)
              RICHARD WEBSTER

              As a conveyancing solicitor I believe the information given in the post to be useful (provided it relates to property in England & Wales) but I accept no liability except to fee-paying clients.

              Comment


                #8
                Originally posted by Gordon999 View Post
                It makes no sense to create a tax situation on your own money paid into freehold company and then distributed back after tax.
                Broadly I would agree, the sticking point is the flats that say we are X years old and I will be leaving feet first- who needs a longer lease?

                They see that 3 other flats could pay say £10000 each, that's £30000, less tax say £22,000 /5 = £4,400 = A decent holiday or cruise....

                Yes there are very good arguments about that and another problem is that those companies used in Richard's post are often unable to distribute any profits for a lease extension ( another bit of legislation that is based on flawed assumptions). Even companies with share capital might be prevented from doing so or selling shares at a premium.
                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


                  #9
                  Originally posted by Richard Webster View Post
                  (This is a good illustration of why LeaseholdAnswers is seeking the person who invented "shared freehold". A lot folk out there think they are entitled to a free lease extension because they are "SHARED FREEHOLDERS". That is just not the case legally.)
                  Worse still those that think they dont need them - they have a " share freehold" flat ! And on that mythological note where are those oompah loompahs with my flying unicorn- I must away to work.
                  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
                    As I said the main reason for dragging their feet is the legal fees for something that doesn't give them an immediate benefit. Short sighted, I know but not much I can do about it. On the other hand if the remaining flats are able to go ahead on their own the problem is not so bad.
                    So our company holds a meeting and votes on granting a lease extension to the 3 interested flats at nil premium (hopefully). We then get in touch with a solicitor, get him to collect all the requierd signatures and generally sort it out. Is it a plan or have I missed some crucial step?

                    Comment


                      #11
                      Sorry, forgot to thank you all, how rude of me!
                      Can't do anything about the flying unicorn but I know plenty of Oompah Loompahs I could send your way...

                      Comment


                        #12
                        Originally posted by Richard Webster View Post
                        Really up to the other two whether they bother - their problem if they don't.

                        You can point out to them that the present flatowner/company members will happily agree to a lease extension for them at no cost beyond the legal costs involved but if they leave it and years down the track, different people are in charge, they might want a substantial premium for the extensions and there would be little that the 2(being in a minority) could do about it.

                        (This is a good illustration of why LeaseholdAnswers is seeking the person who invented "shared freehold". A lot folk out there think they are entitled to a free lease extension because they are "SHARED FREEHOLDERS". That is just not the case legally.)
                        This is exactly what has happened in our share of freehold. Everyone was offered a free lease extension of 999 years in 2005. 8 flats took advantage but 3 flats did not. Now one of them wants to sell and needs their 62 year lease extending so the buyer can get a mortgage. We now have new shareholders and directors and the company has agreed to extend, but are charging market value - a whopping £35000! They are arguing that it is not fair but they are a minoity and the vote has gone against them getting a free extension. Circumstances change and life is sometimes not fair.

                        Comment


                          #13
                          Indeed! As Richard Webster said, their problem. We've highlighted the advantages of extending but if they don't want to I'm not going to insist.
                          I'm just glad to hear we can go ahead anyway.

                          Comment


                            #14
                            Well no you can't simply go ahead.

                            Firstly when presenting the resolution it may be challenged and you will have to argue the points mentioned earlier
                            Secondly the Board has to serve the best interests of the company which are arguably that you sell at full value now, and in the future.

                            I would suggest that the middle way is that you resolve that
                            1: having purchased the freehold which included the likely value to the FH of selling lease extensions, that it was an oversight not to extend leases at the time, at nil cost, having in effect paid for them
                            2: all shareholders be granted ( which includes future owners) a lease extension of 999 years from say 1-10-2012 ( even if it's 2021 when a flat takes it up) exercisable at time of their choosing at a nil premium-free- plus their and the companies legal costs at the time.

                            Have your lawyer draft these

                            Posted by bbva
                            This is exactly what has happened in our share of freehold. Everyone was offered a free lease extension of 999 years in 2005. 8 flats took advantage but 3 flats did not. Now one of them wants to sell and needs their 62 year lease extending so the buyer can get a mortgage. We now have new shareholders and directors and the company has agreed to extend, but are charging market value - a whopping £35000! They are arguing that it is not fair but they are a minority and the vote has gone against them getting a free extension. Circumstances change and life is sometimes not fair.
                            Now this is a good example where it has gone wrong and what happened with later charging could have led to litigation as a shareholder is in fact being asked to pay twice.

                            Having litigated more than a few of these the outcome is often that they pay the difference between the cost of lease extension then ( which is part of calculation of the overall freehold purchase price) and the current cost "today".


                            Unknowingly the shareholders bought the freehold enabling them to extend for free and I suggest that my resolution reflects that intention and is fair.
                            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


                              #15
                              Ok, so all of us just need to agree to extend but not necessarily do so immediately. Did I understand correctly? I don't think coming to an agreement will be a problem it's only when it starts costing.
                              I assume we can pass a resolution at a company meeting to agree to extend the lease under the terms you mentioned and then some flats can either get a solicitor and go ahead or wait.
                              Thanks by the way!

                              Comment

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