I have been offered 50% of the freehold of my leasehold property - why is buying it so complicated?

by katty-m 20 May 2012 |

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My landlord has decided to sell the freehold. Both myself and the other leaseholder are interested and have agreed a 50% share each. We have agreed a price so you would think the transaction would be straightforward.
I planned to borrow additional funds on my existing mortgage to fund the purchase but my solicitor will not allow this to happen as he said money cannot be secured on a jointly owned freehold (even though my mortgage comapny are securing it against the leasehold interest but want to register the freehold against it) and without the required registration (either a deed of additional security or a deed of substituted security) the mortgage comapny will not lend. For the priviledge of this dispute, I have incurred £350 extra costs by the solicitor. I feel my solicitor is doing a really bad job of advising me, but obviously I am reluctant to change as the other leaseholder and I are using the same solicitor to keep the cost of purchasing the freehold low and I would have to pay the costs incurred to date and start over.
What would happen if I paid cash for the freehold - would the same paperwork have to be completed, thereby running into the same problems as the leasehold mortgage would still be registered against the freehold (but at it's current debt and not with the additional borrowing)? My solicitor is also claiming it would be better not to renew the leases at this stage but from reading around the subject, I get the impression it would be! My sole purpose of buying a share of the freehold is to keep any lease extensions etc to a minimum but if I have to apply for an extension in a few years, could the other leaseholder insist upon a payment for the extension?
For something I thought would be simple it is turning out to be a confusing mess. Any help or advice would be gratefully received.

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MikeGG1 posted
If the mortgage provider are prepared to add the extra cost to the existing mortgage then the solicitor is over-complicating matters.

There are 2 distinct transactions which are separate from eachother.

The first is the extra mortgage which is on the leasehold property. That is an absolutely straightforward matter.

The second is the joint purchase of the lease. That will be nothing to do with the mortgage and is a simple contract apart from a clause which should deal with the various options where one of you wishes to leave or where you are in disagreement.

Each property would remain subject to the original lease. You would, however, have joint control over it instead of the original landlord.

When you move, you would each have the option to sell the property subject to the lease and retain the lease and the income associated with it, or to sell your share of the lease with the property.

What your solicitor seems to be trying to do is to split the freehold so that you each own half and to attach your portion of the freehold to your property. That is probably why he is talking about having to substitute the new security (freehold property) for the old security (leasehold property).

You would then be obliged to sell the property as freehold (or split it at the time of sale).

Perhaps the other leaseholder has asked him to do it that way.

I hope that helps.

There are some solicitors who are occasionally active on this site who might be able to give a more technical answer.

Mike
Posted on 20 May 2012 | Love 0 loves Report
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katty-m posted
Thanks Mike

It is the mortgage company that want the deed of additional security or a deed of substituted security completing even though the additional borrowing would be against my existing debt (the leasehold property). Are they wrong to request this? And is the solicitor right in saying it cannot be completed as that would suggest the borrowing is also secure on the freehold share?

My mortgage conditions state that if I were to acquire additional security, such as:
(i) a new or extended lease of the property;
(ii) an interest in the commonhold or freehold of the property or in the freehold of any building which includes the property;
(iii) an interest over or through neighbouring, adjoining or any other land or buildings which benefit the property
I must inform them within one month of the acquisition. Therefore, regardless of how I purchase (additional borrowing or cash) the share of freehold, it will still be registered on within my leasehold security (or am I misunderstanding the process?).

My solicitor wants to keep the leasehold and freehold completely seperate so that we have the option of selling either at a later date. I just can't understand why there is a hitch in the proceedings when like you say, it should be a straigthforward matter of acquiring additional funds secured on the leasehold property, and the purchase of 50% of the freehold.
Posted on 20 May 2012 | Love 0 loves Report
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MikeGG1 posted
Your original question implied that it was your solicitor who was causing the problem. Now it seems to be the mortgage provider.

The usual reason for the clauses that you have mentioned is so that they can check if there is anything in the contract which would be predjudicial to the value of the security that they hold. Are there any clauses in the deed which would require the linkage to be registered (presumably with HM Land Registry)? Some of that fee would probably be for HMLR.

The other alternative might be for you to set a company to hold the freehold and each to hold half the shares. You would then not technically be doing one of the items that you mention.

Mike
Posted on 20 May 2012 | Love 0 loves Report
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katty-m posted
To be perfectly honest I am not sure which is causing the problem - they both contradict what they have said, blame the other party for the problem and we just seem to go round in circles! Maybe it would just be easier to buy the freehold share cash (not that I have the money readily available)...
Posted on 20 May 2012 | Love 0 loves Report
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MikeGG1 posted
You also mentioned the aspect of extensions to your lease. If you just bought the freehold jointly, extensions would have to be negotiated by the respective leaseholder with the landlord who would be the 2 of you. There could be a fee involved but you would get half of it back and the same for the other leaseholder.

When do the 2 leases expire? Does one expire before the other?

However, you could agree a basis now and incorporate it in a partnership agreement.

Mike
Posted on 20 May 2012 | Love 0 loves Report
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katty-m posted
I have 78 years left on mine. I suspect the other leaseholder is the same but will need to clarify this with her. I thought that there would just be legal fee's to pay when we wanted to extend our leases, or do we have to pay ourselves for the lease extension (getting 50% back for each lease extension working on the basis both are renewed at the same time)?
Posted on 20 May 2012 | Love 0 loves Report
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MikeGG1 posted
There is no need for a lease extension for years. The fee to extend a lease is as negotiated and that could be Nil when everything is equal. There is no point in charging yourselves money which you are going to get back.

As leases get shorter, the value of the freehold rises and the value of the leasehold property falls, but not much happens until the lease gets below 50 years.

Mike
Posted on 20 May 2012 | Love 0 loves Report
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katty-m posted
Thanks Mike that is good to know. I'll keep you posted re solicitor and mortgage lenders, will be on the phone tomorrow.
Posted on 20 May 2012 | Love 0 loves Report

I have been offered 50% of the freehold of my leasehold property - why is buying it so complicated?

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