Category Archives: Buying the Freehold

Information for leaseholders and freeholders about purchasing the freehold of a property through collective enfranchisement.

How do I find out who my freeholder is?

The first thing to do is to carry out a search at the Land Registry based on the address of the property.  Help from a solicitor will enable you to do this.

The Land Registry has a website which does also have public access facilities.

In the case of unregistered land, it may be more difficult to locate the freeholder by a search of publicly held information and it may be necessary to serve an information Notice under the leasehold reform legislation.

For further assistance with this please consult a professional.

Tip: Your freeholder’s address and detail should appear on the ground rent demands as this is a legal requirement in accordance with the provision of Section 47 and 48 of the Landlord and Tenant Act 1987.

Buying a leasehold property with an absent landlord

 

I get a lot of enquiries from investors who have been offered a leasehold property where there is apparently a ‘missing’ freehold owner. Often these properties also have what might be called ‘short’ (i.e. under 80 years remaining) leases. This article looks at some of the key issues that you will face if you are buying such a property.

What is the main problem with an absent landlord?

 Whilst it might seem obvious, the key issue with buying a leasehold property where there is a missing landlord is that this person simply is not around to do anything to the property or, more importantly to take any action that might be required under the terms of the leases – such as to ‘police’ any disputes between leaseholders.

There is also a significant risk that important tasks that are the freeholder’s under the lease, such as repairing or insuring the property may not be dealt with. This could lead to significant disrepair, or a situation where there is no insurance on the building, making the flats un-mortgageable.

Another risk is that the once absent freehold owner may turn up in the future and begin to enforce the terms of the leases. This could lead to litigation or to the risk of the lease becoming ‘forfeit’ – i.e. brought to an end because of a fundamental breach. At the very least there might be an action for unpaid ground rent which could cover up to the last 12 years (on the basis that this is the extent of the applicable limitation period).

Does this make it impossible to buy a property like this?

In short, most of the problems caused by an absent freeholder can be solved as far as making the title acceptable to a lender is concerned. A missing landlord indemnity policy can be purchased – which will cover the flat owner against the risk of litigation brought by the freeholder if he or she returns seeking ground rent or to enforce the lease covenants.

Similarly, an extra policy of buildings insurance policy can be taken out that will cover the risk (if the flat owners have been insuring their own parts of the properties themselves) where one owner has not insured their particular part.

These items, together with a clear examination of what has been going on in practice will generally get you to the point where the title can be considered to be acceptable for purchase (or mortgage) purposes.

But what if I want to extend the lease or buy the freehold?

Whilst the above steps might satisfy a bank or building society, where the lease is short, this problem will not go away unless you are able to take legal steps to enforce your legal rights in the absence of the freeholder.

To state the obvious, if the freeholder has disappeared there will be no-one who can grant you a lease extension, or that you can enter into negotiations with to buy the freehold.  So, what can you do?

Fortunately, there is a ‘missing freeholder’ procedure under the Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993 Act’). Using this you can take advantage of the statutory rights that you would otherwise have under this act – such as to purchase a lease extension of 90 years on top of the unexpired term of the existing lease – or to buy the freehold (as part of a collective with other flat owners).

Both of these present challenges, as to purchase the freehold needs 50% of the long leasehold flat owners to act collectively (although where there are only two flats in the building both must act together). In the either case you will be looking to convince a court that the landlord genuinely cannot be found and that the court should accept service of a claim to purchase the freehold on his or her behalf.

If the court agrees that enough steps have been taken to attempt to trace the freeholder and they genuinely cannot be found, then the matter will be transferred to the Leasehold Valuation Tribunal who will determine a price and then send the matter back to court so that the court can effect the transfer if the required funds are paid into court.

A similar process applies to the right to purchase a 90-year extension on top of the unexpired term of the existing lease under the 1993 Act. However, bear in mind if you are purchasing the property that to exercise this right you will need to have been the registered owner of the property for at least two years (unlike with the right of collective freehold purchase where there is no qualifying ownership period).

If you are purchasing a property with a short lease then any claim to an extended lease started by the seller (assuming that they qualify) can normally be assigned to the purchaser as part of the conveyancing process.

 Missing landlord problems – the initial steps

However, with a missing landlord the process is likely to be much trickier – and subject to some fairly significant delays – if it is not already well under way by the time you make your offer to purchase the flat. This is because to be able to initiate a claim in the County Court, various preliminary steps need to be dealt with such as obtaining a private investigators’ report and placing a ‘statutory advert’ in the London Gazette and also the press local to where the property is located.

These are all part of the preliminary steps to tracking down the missing freeholder that need to be dealt with before a court will accept that the freeholder is truly missing and that it should accept service on his behalf.

Are they really missing?

A lot of the time, the so-called ‘missing’ landlord is not really missing and can be found, either by a bit of investigation or by searches of the electoral roll or similar. If this happens then the claim can proceed in the usual way.

In a similar way, if the freehold is held by someone who is an undischarged bankrupt, or if it is in the name of a company in liquidation or administration then it may be possible to serve a notice on the trustee in bankruptcy, or the administrator of the company.

Where the freeholder has died, then if there is a will the executors will be obliged to deal with the claim and in the case of a complete intestacy, the treasury solicitors’ office may be able to deal with the estate to effect a sale through its ‘bona vacantia’ department.

If the freehold was held by a company and the company has been struck off or dissolved, then once again the Crown, (via the Treasury Solicitor’s department) may be able to arrange the sale of the interest.

This shows is that if you are faced with a property with a missing freeholder the first question has to be ‘how missing are they?’

If you are interested in, or being offered a property affected by this issue, then you should consider taking specialist advice at the earliest opportunity.

Serving notice under the 1993 Act – “It’s just filling in a few forms, right?”

As I explained in my recent talk, “Take No Notice” with Andrew Pridell of APA Associates at the ALEP Autumn Conference on 18 October 2011, serving notice under the Leasehold Reform Housing and Urban Development Act 1993, is not as easy as it seems.

This was a talk to other professionals at the ALEP (Association of Leasehold Enfranchisement Practitioners) Autumn Conference and although that talk was aimed at professionals (a full set of notes appears at leaseholdreformnews.com) there are a few points that anyone looking to engage with this area should bear in mind.

  • The notice must be signed personally by the qualifying flat owner. For instance, someone holding a power of attorney cannot sign on behalf of someone else.
  • A UK company is going to need to execute the notice as a deed. An overseas company will present different issues.
  • Any offer figure must be made in ‘good faith.’ This has a specific technical meaning and ideally therefore (although it is not mandatory) specialist valuation advice needs to be obtained.
  • Allocating any offer figure must be done correctly. This will involve consideration of technical issues such as additional freeholds, or other leasehold areas to be included in the claim. If there are other leasehold interests or superior (head) leases then this too needs careful consideration. The valuation and legal advisor will need to liaise closely.
  • The notice needs to be addressed to the correct parties. Once again this is technical and any slips will make the notice void. The list to be served may include other landlords and other parties. The right addresses for service are not always readily apparent.
  • Multiple signatures of a single notice may present significant legal issues particularly, if this is done without proper advice and supervision. Using a solicitor will almost certainly assist in the event of a challenge.

Bear in mind that if the notice is not served correctly that you will be liable for the landlord’s costs of investigating your claim and serving counter notice (legal and valuation) and you will have to start all over again. If your lease has slipped below a critical point (e.g. below 80 years), then irreparable damage may be done.

Similarly, in a collective claim where a large number of people have to sign a notice, if there is an invalid notice, vital impetus will be lost and the claim may take a long time to start going again. This is to say nothing of the possible expense and inconvenience of a court case investigating the notice if invalidity is not conceded.

Likewise, without the benefit of specialist help, where difficulties have arisen, those qualifying may actually withdraw a perfectly good claim – leading to the position that they cannot bring a fresh claim for another year.

For all of these reasons (amongst others) specialist help should always be sought. As such you should always use a firm of legal or valuation advisors with a proven track record in this area, such as an ALEP member.

 

Should we go for the freehold or exercise the Right to Manage ?

This can be a potentially confusing choice for a collective of flat owners and depends on what exactly the likely participants want to get out of the process. It is important to get this right at an early stage in a collective action so as to avoid a lot of wasted time and effort in the early part of the process.

In short, the answer depends on what you want to get out of the process and what the key motivating factor(s) for pursing some sort of collective action are.

Do you have only management issues?

If your main objective is to deal with only the issues arising out of the management of the block, then the ’Right to Manage’ may be more appropriate.

How long are your leases?

If some or all of the leases in your block are short then there is likely to be a higher capital cost to buying the freehold and also funding non-participating flat owners. This is can be a potential ‘deal breaker’ for a freehold purchase if those taking part cannot (or do not want to) fund the non-participating flat owners and outside funding cannot be found (or is not wanted).

If there are a variety of lease lengths then there may also be issues as those with shorter leases will have to pay more to take part and this disparity may be a barrier to getting a freehold purchase started.

In such a case, then Right to Manage, (possibly followed by lease extensions for those that are interested) could well be the best way forward.

Longer leases, but management an issue?

Normally, if the leases are ‘long’ then there may be less of an incentive to pursue the freehold. However, if the building’s management is an issue then provided that there is a good level of participation and that the capital cost per participant is not too high, then buying the freehold may well be the better option.

This is because the transactional process in terms of cost and timescale may well be similar for freehold purchase and the right to manage. As such, freehold may be a better result as the ownership (as well as control of the landlord functions under the leases will change).

As always these sorts of decisions need to be made on a ‘case by case’ basis however, the above may well prove a useful starting point for discussion. Appropriate advice from a suitably qualified professional should be sought when making any group decision about the relative merits of freehold purchase or right to manage.