Questions on buying leasehold flats

[Nimrod103]

I am helping a friend to buy an investment property for btl. He is looking at a currently rented leasehold flat, above a shop, the only flat in the building. Fairly attractive, roomy old building in apparently good condition, but with only 150 years on the lease. The freeholder owns the whole building. The ground rent and maintenance fees seem reasonable, but I am quite unfamiliar with how leasehold actually works in practice. What is to stop the freeholder jacking up these fees over time? Is there a disadvantage being the only leaseholder with a residential lease? I am led to believe that the local council is very restrictive on what the shops can be used for, so future nuisance doesn't seem to be a problem. Any other comments would be appreciated.

[unperplex]

Hi, you need to study the lease carefully.Provisions relating to the ground rent and maintenance charges will be contained in the lease.There may also be provisions relating to the use of the shop.Your solicitor should do this for you.He could also do a local search relating to the shop to see if there are any formal planning restrictions on it, as well as a local search on the flat.150 years seems a reasonable "term".
Every lease is different and there are no ( or very few) laws governing the level of charges levied by the landlord.It is all contractual and contained in the lease.Many leases of flats above shops will contain provisions for the flat owner to pay a fixed percentage of the costs of maintaining the whole building (50% or less, depending on the relative sizes of the flat, the shop and any other properties forming part of the building). You should ask for copies of the charges levied in recent years - perhaps the past 5 years.This should give you an idea of what is payable.However the lease could say ANYTHING, so have it read carefully,by someone who knows what to look for e.g.: a local solicitor ( who should be familiar with the property or similar ones in the area, and also know the policy of the local council about uses for the shop).Please note however that planning policy is not set in stone and can alter from time to time.
Hope the above is useful.
Best of luck.

[Clitheroekid]

What is to stop the freeholder jacking up these fees over time?

The owners of residential leasehold flats are given quite a high degree of protection by the Landlord and Tenant Act 1985 (as heavily amended) which basically says that a freeholder can only recover charges that are `reasonable'.

However, it's a highly complex area of law, and I would recommend you / your friend to have a look at the excellent LEASE website for detailed information - http://www.lease-advice.org/

Is there a disadvantage being the only leaseholder with a residential lease?

Not particularly. The protection is just the same. In fact in some ways it's better, as one of the big problems with having more than one leaseholder is getting them all to agree to things.

Any other comments would be appreciated.

The fact that it's `only' got 150 years on the lease isn't a problem. Indeed, many new flats are granted on 125 year leases, so this one is actually better than them.

He needs to check that the ground rent is either fixed, or that any provisions for increases are reasonable. There are a lot of scams around at present, including one employed by Taylor Wimpey where the ground rent doubles every 10 years and such provisions can make a property unsaleable.

The most important thing your friend needs to do is to employ a solicitor who is familiar with leasehold property. A great deal of conveyancing nowadays is delegated to unqualified muppets, who haven't got a clue about leasehold and would not be able to advise him properly. If he chooses his solicitor by price this is invariably what he will end up with. Instead go for one that's personally recommended by someone who has bought leasehold property recently.

[unperplex]

Also, I do not know of any disadvantage in having "the only residential lease".
An oversimplification, but the flat will have been created leasehold because (for legal reasons) this is the best way to do it.You cannot have two freehold properties one above the other (because "freehold" means you own everything (theoretically up into the sky and down into the earth).Therefore there can be only one "freeholder" of any plot of land.For this reason all flats are leasehold (in general, although theoretically it might be possible otherwise...).Also (again for legal reasons) it is preferable to have several properties which occupy the same plot (or at least the upper one if there are only two) to be held leasehold.The reason for this is, briefly, that the covenants for repairing the roof etc. and maintaining the structure of the building can only be enforced via a leasehold arrangement.In particular, you will find that lenders such as Building Societies or Banks simply will not lend against "freehold" flats.Because these days no one buys property with their own money, "freehold flats" are, effectively, unselleable and therefore almost worthless.

[unperplex]

Clitheroekids comments appear very sound.

[DiamondEcho]

The fact that it's `only' got 150 years on the lease isn't a problem. Indeed, many new flats are granted on 125 year leases, so this one is actually better than them.

It's not that long ago that say only sub-70 years started triggering alarm in leaseholders, enough for them to do something about it. That held in much of London, where the majority of leases into the '80/90s started as 100 years, so resales tended to have 9x or 8x years remaining. .
But bear in mind that the big land estates, Portland, Grosvenor, Cadogen, etc; with them new leases are a mere 60 years...

For my area and demographic it used to be said that the remaining term [of the lease] only became an issue when it was less than what the owner perceived as their own remaining probable lifespan. As a 20 year old would you buy a 55 year [remaining] lease? Uh-ah. Hence, 150 years is IMO simply not an issue.

[Arborbridge]

It's not that long ago that say only sub-70 years started triggering alarm in leaseholders,

It does mean than you cut down the group of buyers available when you sell. At around 70 years, it may have to be a cash buyer as it may not be mortgageable.

Agreed 150 years is fine, though.

[Dod1010]

Also, I do not know of any disadvantage in having "the only residential lease".
An oversimplification, but the flat will have been created leasehold because (for legal reasons) this is the best way to do it.You cannot have two freehold properties one above the other (because "freehold" means you own everything (theoretically up into the sky and down into the earth).Therefore there can be only one "freeholder" of any plot of land.For this reason all flats are leasehold (in general, although theoretically it might be possible otherwise...).Also (again for legal reasons) it is preferable to have several properties which occupy the same plot (or at least the upper one if there are only two) to be held leasehold.The reason for this is, briefly, that the covenants for repairing the roof etc. and maintaining the structure of the building can only be enforced via a leasehold arrangement.In particular, you will find that lenders such as Building Societies or Banks simply will not lend against "freehold" flats.Because these days no one buys property with their own money, "freehold flats" are, effectively, unselleable and therefore almost worthless.

With respect I find many of the comments in this post altogether too glib. In Scotland for instance there are in my experience not that many flats which are leasehold. It can cause a few problems but of course it can work without being leasehold. Mortgagors used to and I expect still do lend against flats which are 'freehold'. Plenty people in any case buy such flats with their own money I should think and it is certainly wrong to sweepingly say 'no-one buys property with their own money'. Certainly both my wife and I have at different stages of our lives and I am certain we are/were not the only ones.

I cannot say I have had a lot of experience of English law but after all leaseholders were given the right long ago (20 years?) of buying out their leaseholder. Many of these were in flatted properties in Central London such as the Grosvenor Estate and what used to be Smith's Charity in South Kensington. There are of course arguments for and against this but the fact is you can have it and it more or less works. only in a different way.

Dod

[Clitheroekid]

With respect I find many of the comments in this post altogether too glib. In Scotland for instance there are in my experience not that many flats which are leasehold. It can cause a few problems but of course it can work without being leasehold. Mortgagors used to and I expect still do lend against flats which are 'freehold'.

Scottish land law is totally different from English land law, and ther can be no valid comparison made.

Unperplex is quite correct. Mortgage lenders will not generally lend on freehold flats.

I've just checked the CML Handbook, which is the standard set of instructions issued to lenders' solicitors, and I've picked the Halifax at random. Their position is quite clear:

5.7.1b Does the lender lend on freehold flats?
No

This is typical of nearly all mortgage lenders.

The whole concept of a freehold flat in English land law is a nonsense. As unperplex has correctly stated the basic principle of freehold is that you own the land on which the building stands. If there is more than one horizontally divided property on the land then by definition only one of them can own the freehold outright (or they can own it jointly).

I cannot say I have had a lot of experience of English law but after all leaseholders were given the right long ago (20 years?) of buying out their leaseholder. Many of these were in flatted properties in Central London such as the Grosvenor Estate and what used to be Smith's Charity in South Kensington. There are of course arguments for and against this but the fact is you can have it and it more or less works. only in a different way.

You've misunderstood the law. Whilst the leaseholders in a building can collectively force the freeholder to sell them the freehold an individual leaseholder in a flat cannot do so. Consequently, even if the leaseholders were to buy the freehold between them it's owned separately, and the individual leases continue to exist.

[DiamondEcho]

You cannot have two freehold properties one above the other (because "freehold" means you own everything (theoretically up into the sky and down into the earth).Therefore there can be only one "freeholder" of any plot of land.

I think you might be incorrect there, but it is highly technical and so not clear-cut to me. In just the situation you describe, freehold flats one above another, AIUI their tenure is [or was] referred to as 'flying freehold', and was known to be problematic as the respective rights and obligations of each flat vs the building as a whole is/was unclear.

Edit: But now having just seen CKs post of a few mins ago I'm wondering quite what 'flying freehold' means; perhaps it no longer exists?...

[Nimrod103]

You cannot have two freehold properties one above the other (because "freehold" means you own everything (theoretically up into the sky and down into the earth).Therefore there can be only one "freeholder" of any plot of land.

I think you might be incorrect there, but it is highly technical and so not clear-cut to me. In just the situation you describe, freehold flats one above another, AIUI their tenure is [or was] referred to as 'flying freehold', and was known to be problematic as the respective rights and obligations of each flat vs the building as a whole is/was unclear.

Edit: But now having just seen CKs post of a few mins ago I'm wondering quite what 'flying freehold' means; perhaps it no longer exists?...

I too have heard of flying freeholds, where for two adjoining properties, one might have the downstairs, and one the upstairs over part of the land area. Alternatively there may be a passageway or right of way, over which a property extends at the upstairs level. I would be interested in CK's comments about how flying freeholds work in practice.

[Dod1010]

The basic principle of the freeholder owning the land all rights associated with it applies in Scots Law as well but we still have plenty of what we call tenements, (three or four story blocks with up to four flats per level) and there is nothing to stop them being held in effect freehold, and nowadays most of them are. I mean of course since feudal tenure was in effect abolished. There has never been much leasehold property in Scotland and the system, whilst not perfect works well enough.

Interesting the differences.

Dod

[DiamondEcho]

The basic principle of the freeholder owning the land all rights associated with it applies in Scots Law as well

But the freeholder doesn't. AIUI all land [England] is ultimately owned by the Crown, probably in Scotland too. Even a 'freeholder' merely has a right of occupation, granted it's longer term, but not absolute, nor 'ownership'. That comes as a genuine 'get out of here lol!' shock to many people.
One time I owned a flat in London. The freeholder turned out to be a 'cowboy landlord' who was trying to screw us on service charges. We took him to court [LVT] on claims of mismanagement and we won, big-time. Rather than face the financial consequences he put the freehold Ltd company into liquidation. We were then in the confusing position of having 'won' but having no freeholder, apparently. But in such circumstances the freehold reverted by default to the Crown! So we ended up buying out that freehold from the gloriously styled Crown office of 'The Queen's Remembrancer'. [and they charged us absolute peanuts, and were a joy to deal with].

https://en.wikipedia.org/wiki/Queen%27s_Remembrancer
'The Queen's Remembrancer (or King's Remembrancer) is an ancient judicial post in the legal system of England and Wales. Since the Lord Chancellor no longer sits as a judge, the Remembrancer is the oldest judicial position in continual existence. The post was created in 1154 by King Henry II as the chief official in the Exchequer Court, whose purpose was 'to put the Lord Treasurer and the Barons of Court in remembrance of such things as were to be called upon and dealt with for the benefit of the Crown', a primary duty being to keep records of the taxes, paid and unpaid.'

It's a rather sobering thought, but then benign realisation that at the end of the day the Crown [currently 'Aunt Betty'] actually owns all land and indirectly sub-leases varying rights, just she doesn't make a song and dance about it.

[unperplex]

Sorry, perhaps I should have added a disclaimer "English law only".
I assumed the original poster was referring to an English property.
I know very little about Scots law and Dod may well be right about there being very few leaseholds in Scotland.
I do know however that Scots land law (and practise) is VERY different from English law and this brings up a more general point about buying properties.

If you are buying in Scotland be sure to use a Scots lawyer and consult them at the very earliest stage.

I am dimly aware that in Scots law an "offer" to buy a property is binding once accepted and the English practise that an offer made subject to contract is not binding until formal exchange of contracts has taken place does not apply.

One can also be caught out in other ways.
I vaguely remember hearing of an English (or certainly non-Scottish) buyer who bought a property at auction thinking it seemed very cheap.However it was I think occupied by a "croft" (or associated with a "croft" in some way) and the Scots law relating to "crofts" was so restrictive that what he had bought was more or less worthless.

[unperplex]

DiamondEco and Nimrod103 are correct when they speak of the situation where a part of one property lies above part of another being referred to as a "flying freehold".
However, just because this has over time developed a name,it is not a "freehold" and (if it is not dealt with by a leasehold-type arrangement) there are still legal problems with it.
By analogy, the term "common law marriage" has developed over time, but this does not mean that such a situation is in law a marriage.....
I think it is correct (as one of the posters implied) that there may be practical problems associated with buying a property which includes a "flying freehold", although they may not be insuperable.
I would defer to Clitheroekid here (who has access to the CML handbook), but I think Lenders would be wary of a "flying freehold" (particularly in the increasingly risk- averse mortgage world post 2008).Even if they were prepared to lend on such a property, they might demand all sorts of additional surveys, insurance guarantees etc which, even if available, might cost considerable extra money.
It would of course depend on the extent of the"flying freehold".
A lender might be persuaded to lend on a terraced property where a small part of one bedroom lies over a shared passageway which is in other ownership.However the situation might be different if a substantial part of the property lay over another one.