Buying 100% of the Freehold of a two leases house.

[alteano1965]

Hi,

In 1999 my wife and I bought the lease of the downstairs flat in a two flat converted house, there were 75 years left on the lease. Year later the leaseholder of the flat upstairs put his flat on the market, so we also bought their lease too, we became the leaseholders of both flats. As the Freeholder had been missing for many hears, we applied to the Court for a Vesting order to buy the Freehold, this was granted, we paid the Court the market value of the freehold, and became the freeholders as well as the leaseholders of this property.

The advise we received by the solicitors acting for us at the time, was that unless we applied for a Reversion, the property would not become automatically into a freehold property as it once was, but it would remain with a Freehold and two leases.

I have read opinions in another forum that this is not possible, and that when a Freehold and leasehold belongs to the same people, the leases would immediately cease to exist. Is this correct?, We are not sure as we have obtained documents from the Land Registry showing that we are currently the owners of the Freehold, and also the leaseholders of both leases.

Would appreciate your opinions.

Best regards

Alt.

[mattl]

Yes and no.

By law, if the leaseholder becomes the freeholder then the lease extinguishes because one cannot grant a lease to oneself.

However, the Land Registry has stopped automatically extinguishing leases from its register so unless you apply for the two leases to be extinguished they will remain in place.

Given they will both be short leases it may be easiest to apply to the Land Registry to kill the two leases (as long as you are also shown as the freeholder which you say you are).

Once this is the case then you can either remain as the freeholder of the whole building, or if you prefer you can grant new leases for the two flats. If you do that then (if you hold the freehold together) you would need to grant leases to the two of you individually (again because one cannot grant oneself a lease).

All of this is slightly more complicated if you have a mortgagee on your flat.

[leaseholdanswers]

And I would add that there are tax efficient ways to do this so talk to your accountant as well. For example if you extend the leases from the freehold and you transfer it to a company, then you can keep a high ground rent in the leases,, which you never pay of course but creates a valuable asset, and as a BTL landlord of the flat some SC expenses will be recoverable before tax out of rent.

I am never sure in these cases of whether as freeholder and leaseholder tax is payable on grant of lease extensions as a valuable asset has been transferred, but if so then pre transferring the freehold may mean that you pay a lower rate of tax on the value of that transaction.

it comes up quite rarely so I am just making a suggestion to explore these aspects rather than on a ignore tax basis as valuers as a rule do.