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  • Leasehold Property

    Share of Freehold w/ 63 year lease - London

    Hi,

    I have had an offer accepted on a flat in prime central London in a block consisting of 15 flats which is managed by a freehold management company.

    After receiving the contract pack, the solicitor informed me that the lease has 60+ year unexpired.   All flats within the block come with a Share of Freehold.

    According to the lease, 10 of the 15 flats had extended the lease to 999 years with Nil peppercorn in 2007. The current owner purchased his flat in 2005 and must have ignored or missed the extension and the agency stated that he was not aware and thought it was long-lease flat.

    We have contacted the freehold company, and the person who is responsible for the lease-extension purchased the flat on the same floor with same specification 18 months ago for about 35% more. After asking him the process/timeframe for extension he replied with the following:

    can you please provide contact details for:

    • the firm of solicitors/conveyancers being used by the vendors, and

    • the firm of solicitors/conveyancers being used by you.

    Also, please provide the gross sale price the Flat  (which is presumably still subject to contract).

    it is rather strange that the owner of the next door neighbour is asking for the price. My question is: Does the sale price have any bearing on the extension of the lease? Is it legally correct him to be asking this question or does that mean he has a personal interest in the property? Note that the flat in Question is a Share of Freehold and according to the company house, the current owner holds 6.22% as a shareholder.

    The latest information I have obtained from my solicitor is that there is likely to be a PREMIUM involved for the extension of the lease.  My understanding is that all flats with Share of Freehold can be extended to 999 years with Nil premium. Is there any clarity on this or is it case dependent and what ever the freehold management decides then the seller will have to accept?

    Kind regards,

     Adel

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    The sale price does have a bearing. You are in effect paying the freeholder (ie the 10 leaseholders) the increase in value which you will obtain. Unfortunately you have a statutory right to an extension (after two years of ownership) but not the freehold. So you need to comply with their requests in order to agree a purchase of freehold if you want that
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    As stated, the current owner holds a share of freehold (6.22% as illustrated on company house) and the idea here is to extend the lease from 63 years to 999 years. Not to purchase the freehold.

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    Hi Stuart,

    Thanks for the insight.  Just to clarify, my understanding is that given that the flat has a share of freehold, then it should be come with Nil premium and just a legal fees to extend from the Share of Freehold, with 63 years lease to Share of Freehold with long-lease (999 years from 2007 as the date when all other 10 flats extended).   I thought if its just a leasehold (i.e. without the share of freehold) then the premium exists. 

    If the other 10 flats extended for Nil premium in 2007, does that not give the current owner a right to extend for ''free'' ? Afterall, he owns 6.2% of the freehold company


    Thank u,

    Adel

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    Adel, you are right, NORMALLY that is the case, however it could have been set up differently.
    Sounds like the company bought the freehold, every flat has a share, but maybe the money was put up by an investor or bank which is repaid from the premiums. 
    We just don’t know, you have to ask the solicitor to clarify.
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    Normally when a block buys their freehold all of the participating leaseholders’ leases are extended to 999years. 
    If your seller didn’t participate in the freehold buyout then your share of freehold is owned by someone else and you have to pay a premium to extend. 
    If your seller did participate and you do own your flat’s share of freehold then you can just extend without paying a premium and the neighbour has no business in it. 
    Your first port of call is the conveyancing solicitor, they will know if you do or don’t have the share of freehold.
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    Thank  you very much.  Just to reiterate, the vendors name is shown on company house for owning 6.22% of the the share of the freehold.  There are 15 flats and all but one flat hold around 6-8% share of the freehold.  The vendors name is included as one of the shareholders.





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    As leaseholders hold different percentages of the freehold company it may be that a premium is to be paid and the money distributed as dividends according to the share held.
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    You should check the basis of the purchase of the freehold, if it included the right to extend the lease without payment of a premium or if a premium would still be required.  Perhaps try talking to some of the other leaseholders who have extended their lease and see if they paid a premium to do so., also ask what happens to the money if a premium is paid.
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    Whilst it is possible to extend the leasehold associated with a share of freehold I'd be surprised when not everyone has bought in.
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022