Period Lease renewal confusion

[JoceAndChris]

We own a flat in London that is Share of Freehold, but with a 99 year lease. (59 years remaining, I think) What happened was that two adjoining Victorian properties, each comprised of 7 flats, clubbed together and bought the freehold in the early 80s, shortly after the conversion. They set up a Management Committee to deal with communal issues, into which we all pay a monthly fee that pays for roofing work and exterior decoration. Anyway, most of my old neighbours are now having a panic and extending the lease, even though as we are all part of the Management Committee we all own the freehold. Extending the lease seems to involve extremely high costs at the solicitor's.

Has anyone been through this, and can give any advice or share any knowledge? We are wondering if it's really necessary, at a time when BC needs so much. We aren't planning to ever sell the flat, though were we to be killed in a drunken brawl, I wouldn't like to think I'd left a right old mess for my executors and beneficiaries to sort out.

Any thoughts are much appreciated.

 

[Lime]

Ok, I'll ask the question I would ask my wife ( ).
Have you asked those in panic why they think they need to extend their lease?

 

[tobydog]

Maybe I'm confused but if you share the freehold with the other occupiers, what lease do you actually have? Who is the lease agreement with?

 

[JoceAndChris]

The panickers are saying that if you need to sell then buyers are very off-put by there only being 59 years remaining, and won't understand the niceties of the fact they would automatically become a part of the company that owns the freehold.

Toby - the new lease agreement would be with the 29/31 H- Lane Management Committee. Effectively, I'd be paying several thousand to have a legal agreement drawn up with myself and 15 others. It's all very Kafkaesque.

 

[Moo]

A silly question, no doubt, but has anyone explained to you what the situation will be in 59 years time?

 

[LadyArowana]

You need to find out what exactly the cost is for, how much is legal fees for the preparation of new leases and rectification of defects in the current lease and how much is the payment being made to the freehold owning company. In theory, if you own an apartment and you also ( collectively with your fellow apartment lesees ) own the company that owns the freehold then granting new leases should not be expensive in the way that a leasehold only place with only a short residual term remaining would be. The lease premium goes to the freeholder, so in a case where they are one and the same person it's only moving money from one pocket to the other. There are online calculators for roughly costing extending leases where you are not also the freeholder. That having been said I know of an occasion when someone with leasehold/ share of freehold did have to pay a significant premium for their lease extension. This was because at some point in the past the previous owner had not opted into "something" and the defect persisted. To give some idea of scale it was a difference between a normal cost of maybe 2 to 3 thousand and 50,000 to 60,000.It might be worth investigating whether granting new leases with 999 year life is a better option than another 99.

 

[tobydog]

It looks as though you have a split freehold or whatever term is used. There are the likes of yourselves who have a share of the freehold and those who chose not to be part of it. The latter are the ones who have the leases with the mangement company and are rightly concerned that the term is 59 years and falling. Increasing these leases to 999 years would increase the value of the properties over and above their current values even when taking into account the cost of purchasing the lease extension.

As an existing freeholder I don't understand why you are individually party to this arrangement and incurring costs. The leaseholders (of which you are not one) should be paying the required premium to increase the leases to 999 years and I believe the legal costs should also be borne by the leaseholders.

Not every leaseholder has the right to an extension, however, the law has moved very much in their favour over recent years. The key obligations on the freeholder/s is that they don't unreasonably withhold the right to extend or charge an unreasonable premium. There are leasehold tribunals that can be involved.

Disclaimer - I'm not a solicitor. I'm just a poor chicken farmer (3 fluffs) who just follows these things. I may be completely wrong so real legal advice is always best.

 

[skier-hughes]

Tobydog,
I think the situation is you have 7 owners of flats.
You have the same 7 owning a company.
This company owns the freehold.
The individuals have a lease with the company.

To me it sounds like panic, viote with your feet and use the opt out clause and stall proceedings, or find a new solicitor who'll charge a reasonable fee and set up a 999 year lease to put it o bed.

 

[tobydog]

Good point. I missed the fact that all the occupiers share the freehold and it's not split. I'll go back to my chickens!

 

[LadyArowana]

Tobydog,
I think the situation is you have 7 owners of flats.
You have the same 7 owning a company.
This company owns the freehold.
The individuals have a lease with the company.

To me it sounds like panic, viote with your feet and use the opt out clause and stall proceedings, or find a new solicitor who'll charge a reasonable fee and set up a 999 year lease to put it o bed.

Yes. "owning" a flat is different from "owning" a house because of the issue of the land it stands on!

 

[JoceAndChris]

A silly question, no doubt, but has anyone explained to you what the situation will be in 59 years time?

I would really love to know the answer to that question. I'll be 100, hopefully, but may not feel like writing letters and dealing with solicitors!

You need to find out what exactly the cost is for, how much is legal fees for the preparation of new leases and rectification of defects in the current lease and how much is the payment being made to the freehold owning company. In theory, if you own an apartment and you also ( collectively with your fellow apartment lesees ) own the company that owns the freehold then granting new leases should not be expensive in the way that a leasehold only place with only a short residual term remaining would be. The lease premium goes to the freeholder, so in a case where they are one and the same person it's only moving money from one pocket to the other. There are online calculators for roughly costing extending leases where you are not also the freeholder. That having been said I know of an occasion when someone with leasehold/ share of freehold did have to pay a significant premium for their lease extension. This was because at some point in the past the previous owner had not opted into "something" and the defect persisted. To give some idea of scale it was a difference between a normal cost of maybe 2 to 3 thousand and 50,000 to 60,000.It might be worth investigating whether granting new leases with 999 year life is a better option than another 99.

Thanks for the helpful post. I think you're right, find a good local solicitor, show her/her the documents we have and get a quote.

Tobydog,
I think the situation is you have 7 owners of flats.
You have the same 7 owning a company.
This company owns the freehold.
The individuals have a lease with the company.

To me it sounds like panic, viote with your feet and use the opt out clause and stall proceedings, or find a new solicitor who'll charge a reasonable fee and set up a 999 year lease to put it o bed.

Yes. The situation is that there are 14 owners of 14 flats. The same 14 own the company, must own the company, must sign legal paperwork and therefore agree to become Freeholders. Every time the flats are sold the new owner joins the company in place of the ex-owner.

Good point. I missed the fact that all the occupiers share the freehold and it's not split. I'll go back to my chickens!

Aww, they're lucky to have you. Thanks for helping shed light on it all.

I like the idea of the 999 year lease, thanks for that idea.

 

[JoceAndChris]

Tobydog,
I think the situation is you have 7 owners of flats.
You have the same 7 owning a company.
This company owns the freehold.
The individuals have a lease with the company.

To me it sounds like panic, viote with your feet and use the opt out clause and stall proceedings, or find a new solicitor who'll charge a reasonable fee and set up a 999 year lease to put it o bed.

Yes. "owning" a flat is different from "owning" a house because of the issue of the land it stands on!

That's right, you can never own the hallway, the roof, the stairs, the bin area etc. There has to be something in place to take care of these areas.

 

[Flyfisher]

We aren't planning to ever sell the flat, though were we to be killed in a drunken brawl, I wouldn't like to think I'd left a right old mess for my executors and beneficiaries to sort out.

Just give up drinking and fighting then. :wink:


Some non-legally-qualified thoughts. Although 'ownership' has to be split between the leaseholders and the management company, the company is owned (I think) entirely by the leaseholders. Thus, there are no other parties involved in the entire property. So, presumably, at the end of the current lease, the only people involved in deciding the terms for extending the lease will be the leaseholders and the management company. I would want to know about the articles of association of the management company and if there are any constraints upon it regarding lease extension but, on the face of it, if the leaseholders are also joint owners of the management company then I'd expect it to be a fairly simply process for the directors to propose a lease extension and for the shareholders (owners) to vote it through.

There will be some procedural paperwork but I doubt it would be complex or expensive. I suppose it would require the cooperation of all the leasholders/company owners, but since such an extension would, presumably, be in their favour I doubt there would be a problem.

If there was some sort of documentation to this effect, perhaps better still some sort of legally binding commitment for the company to extend the lease, then I'd hope that assurance would assuage any concerns of potential buyers and, therefore, hopefully quell the panic of the current leaseholders that the value of their property may be declining.

My understanding of lease extensions is that (as Tobydog mentioned) there are quite rigid formulas for calculating values, based on market value, ground rent, term remaining etc. Thus, the 'value' of the leaseholds to the freeholder (the company) can be definitively calculated and this is an asset of the company. What I don't know is whether the company would be 'allowed' to do whatever it likes with this asset as there might be tax implications
I don't know about and therefore the potential tightrope of tax avoidance/evasion.

Lots more info here: http://www.lease-advice.org/publications/documents/document.asp?item=10

My general approach to these sort of things that require some professional advice is to first decide what I want to achieve. It's then usually possible to have a "this is what I want to do - can I?" conversation rather than "what should I do", which can lead you into all sorts of time-consuming (i.e. expensive) discussion of various options.

So, I'd say your objectives should be to quell the immediate panic, secure the right for lease extension at a peppercorn cost and delay this cost for as long as possible.

 

[Moo]

What I don't understand is the apparently continued existence of the original 100 year lease.
Surely, when the freehold was purchased the old lease ceased to exist and a new one was created. Why they had to hang on to the terms of the old lease beats me!

 

[Lime]

What I don't understand is the apparently continued existence of the original 100 year lease.
Surely, when the freehold was purchased the old lease ceased to exist and a new one was created. Why they had to hang on to the terms of the old lease beats me!

Perhaps some leaseholders did not enter the purchase agreement?

 

[LadyArowana]

What I don't understand is the apparently continued existence of the original 100 year lease.
Surely, when the freehold was purchased the old lease ceased to exist and a new one was created. Why they had to hang on to the terms of the old lease beats me!

The lease would have been created at the time the subdivision into apartments happened. I assume that the house was bought ( freehold ), then the owner converted the house into apartments + common parts and and sold the apartments ( leasehold ). These leaseholders them came together and through the special purpose vehicle of the management company bought out the original owner, the new company would have acquired whatever leases existed.

 

[skier-hughes]

and at the point the company tok on the new lease, you'd ahve thought it would nullify it, and start a new 999 year lease Maybe the company was formed 41 years ago?

 

[AMc]

My brothers London flat was leasehold and the mortgage company were quite twitchy about it 'only' having 60 years left despite applying for a 25 year mortgage. I didn't get it as if he'd defaulted towards the end of the mortgage his equity would have offset any devaluatin caused by a short lease.

If the freeholders are the leaseholders and there are no other parties involved I would try to co-ordinate all 14 flats to collectively extend the lease on all the flats at the expense of the management company - paid from the service charge.
I can see trouble ahead if some owners have paid for extensions and others have not.

I'm not a lawyer and that isn't legal advice though

 

[jocelyn plummer]

Those who are 'panickers' may well have read, as I have, in those property question and answer pages of the weekend newspapers, that it is a 'good idea' to extend/renew the lease---- all in the interests of 'trouble free' selling--- hmm--of course there are genuinely unsorted conundrums connected with leasehold, but somebody's pocket is going to be well lined at some point.

 

[Feltwell]

somebody's pocket is going to be well lined at some point.

Yes, and I think we can safely assume it will be the solicitors.