Solicitors Specialising in Enfranchisement and Lease Extensions with Missing Landlords
Many people are put off buying a leasehold flat with a missing freeholder. But sometimes, an absent freeholder can mean picking up a real bargain. Why? Because it’s possible to both extend your lease and join with your fellow leaseholders in buying the freehold together – even if your freeholder is missing – and often at a bargain price.
July 2024 Leasehold news – The new Labour Government has indicated that it intends to complete the legislation to make sure that the Leasehold and Freehold Reform Act passed on the last day of Parliament comes into effect. And the Kings Speech contained plans of yet more proposed changes to the leasehold system. But the actual freehold purchase changes won’t come into effect until the Act is actually implemented, and we have been given no idea when that might be – nor did we have much detail of how the reforms will actually work in practice.
Keep up-to-date with the proposed changes – click here to read our Leasehold Reform Latest News
Got a Question about Buying Leasehold Property with An Absent Freeholder? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
How to extend a lease or buy your freehold when your freeholder is missing
The answer, which a surprising number of leaseholders, estate agents and solicitors alike are all unaware of, is the Vesting Order, which we explain in more detail below.
Click here to read more about Lease Enfranchisement and Lease Extension
Does an absent freeholder cause any legal problems?
Unfortunately, the answer is yes. Not having a freeholder you can turn to can cause some real practical difficulties:
· Firstly, with a missing freeholder, then unless the leaseholders have exercised their right to manage or (in which case they will be responsible for managing the property or through a chosen management company), there may be real issues with maintenance – because there’s no one to maintain the property and collect service charges. And who’s going to pay for insurance of the block – usually the freeholder’s responsibility. And add in who’s going to be responsible for other elements of block management that your freeholder or management company will normally handle – such as communal asbestos & fire risk assessments,
· Secondly an absent freeholder means there’s nobody who’s going to enforce obligations (such as the right of all leaseholders to enjoy “quiet enjoyment”). And while some restrictions in your lease can sometimes be annoying, you’re better off with a properly run block where leaseholders can’t break the rules.
· Thirdly, if either of the above reasons are causing problems in the block, then you may find that getting a mortgage from a lender who is not keen on missing landlords could be difficult.
· Fourthly, there’s no one to agree to extend your lease or sell the freehold – but don’t worry, there’s a really good solution to this problem – the Vesting Order as mentioned previously –see below for more info
· Lastly, because of these issues, though there are solutions available, you will probably find it more difficult to sell your flat with an absent freeholder. Many potential purchasers will be put off, and probably won’t realise that there are solutions to the problems. Many estate agents won’t understand these issues either.
How can I trace my missing freeholder?
In the event that your freeholder is managing the block personally, then this should be straightforward. The freeholder’s name and contact details should appear on every service charge request you receive.
If this doesn’t work, then your next best option is to get in touch with the Land Registry to find out who is the registered freeholder – these details should appear on the freehold title register.
Amongst the other kinds of investigation you may need to carry out in order to justify a vesting order (see below) are the following;
- a physical visit to the property
- one or more adverts in the local paper
- a Companies House search if the freehold is owned by a limited company
- attempting to track down the absentee freeholder through any managing agents who have dealt with the block, or with anyone who has tried to collect any ground rent or service charge on the missing freeholder’s behalf
- proof that is what is called an “absentee freeholder title indemnity policy” was recently required by the lender in respect of the recent purchase of a flat in the block by a leaseholder
In short, when it comes to a vesting order, the more you can do to show you have tried to find the absent freeholder, the better.
If none of these options are successful, then you might indeed have an absent freeholder which could open up the Vesting Order process and provide you with the opportunity of a bargain lease extension or freehold purchase opportunity.
Absent Freeholders and The Vesting Order Process
The process for either lease extension or freehold purchase when your freeholder is missing, initially involves an application to Court for what is known as a “vesting order”.
In acting for you, we will prepare the same notice of claim as we would if you were to be purchasing the freehold or applying for a leasehold extension from your landlord under the Leasehold Reform Act 1967. However instead of serving it upon them, we will send it to the County Court with our application.
The Court must be satisfied that we have conducted sufficient searches for your absentee freeholder. If the judge is convinced that your freeholder really is “missing”, then they will make a Vesting Order. And this order means that you simply don’t need to serve the appropriate notice on your freeholder.
The County Court will then pass the matter to the First-Tier Property Tribunal who will determine the price (referred to as the premium) you should pay for the freehold (or lease extension) and the extent of the land to be transferred to you. These are is referred to as the “terms of acquisition”. Once they have done this, they will pass the matter back to the Court so that the Court may sign the transfer in the absence of the freeholder.
We will then need to pay the premium into Court. The court will hold that money – and if at any stage in the future the missing freeholder re-emerges, that money will be paid to them. Once the premium has been paid to the court, we can complete the process of buying the freehold (or lease extension).
Click here to read more about Vesting Orders and Missing Freeholders
What happens if our absent freeholder subsequently turns up and claims ownership of the building?
Nothing – if you have bought the freehold, then the legal title will by now have passed to you and the missing freeholder is only entitled to the money already paid into court. Similarly, with lease extension, the freeholder is bound by that lease extension and is only entitled to be paid the premium held by the court
How long is this process likely to take?
Unfortunately, the whole process involving both the County Court and the First-Tier Property Tribunal is not quick. It can take between 12-18 months.
How much is this likely to cost?
The biggest expense is likely to be the premium you need to pay into court to buy the freehold. Every building varies – the statutory calculation depends on a number of factors including the value of each individual flat, the level of ground rent payable both now and in the future and the length of the remaining lease.
You will need to appoint a specialist surveyor to value the premium. Here at Bonallack & Bishop we have developed an informal panel of surveyors who specialise in this area. We more than happy to put you in touch with one in your local area – and if you wish, to instruct him or her on your behalf.
Click here to read more about specialist enfranchisement or lease extension surveyors.
However, in addition to the premium, you will also have to pay your own legal and valuation fees, plus court fees.
The good news is that unlike buying your freehold through the process of enfranchisement, you don’t have to pay the reasonable legal and surveying costs of your missing freeholder – because that freeholder is not involved in the proceedings.
What’s more, because the First-Tier Property Tribunal, in assessing the right premium, will only hear from your valuer, we would normally expect the premium set by the Tribunal to be on the low side. Sometimes this means that you can then buy your freehold for what is frankly a bargain price.
Click here to find more about how the First-Tier Property Tribunal works.
NB the fact that the First-Tier Property Tribunal will only hear from you and your specialist surveyor means that not only is buying your freehold likely to be a bargain with an absent freeholder – but so is extending your lease
Your vesting order – cost orders to cover your legal fees
When buying your freehold or extending your lease with a missing freeholder, although you are responsible for paying your solicitors’ legal costs, and the costs of any disbursements (i.e. additional expenses, such as the cost of a local press advert or hiring a private investigator), your solicitor can apply to the court for a costs order – a direction from the court that your legal fees and disbursements can be deducted from the premium you need to pay into court.
You do need to be aware that this kind of order is entirely at the discretion of the court. However, because our specialist leasehold team regularly apply for vesting orders in relation to lease extension and enfranchisement, we are regularly successful in claiming these legal costs back for our clients.
What is absent freeholder indemnity insurance? How does it help?
This particular type of absentee landlord insurance policy is often taken out where the freeholder is missing or is gone into either liquidation or receivership.
In the circumstances, absent freeholder indemnity insurance aims to ensure against any financial loss that occurred as a result of action taken as a direct result of the freeholder being missing – including service charge arrears, breaches of the lease and unauthorised work carried out in the block.
It doesn’t help with getting a lease extension or buying the freehold with an absentee freeholder.
FAQs
What does the freeholder is absent mean?
Sometimes, a freeholder cannot be identified or located. It may be that someone has converted a property into flats and then moved on to other projects, leaving the freehold unattended.
This situation may continue for a while, making it impossible to locate the freeholder. When you need the freeholder to take action, you will run into difficulties.
Can you sell a property with an absent freeholder?
An absent freeholder will often deter buyers from purchasing a leasehold property. Most mortgage lenders will refuse to lend until the situation has been rectified or indemnity insurance is in place. If buyers cannot obtain a mortgage, a property is much harder to sell and will generally have a lower market value.
The main reasons that buyers and mortgage lenders may not want to go ahead are:
• There is no guarantee that the building will be properly insured
• No-one has the right to collect service charges
• Management of the flats and communal areas may be poor or non-existent
• No-one has the authority to enforce the covenants in the lease, for example, taking enforcement action if another flat owner is breaching the terms of the lease
However, you can sell a property with an absent freeholder if you obtain an order vesting the freeholder’s interest in the property in you and your fellow leaseholders. You will usually create a management company for this purpose.
A vesting order will give you the right to take on the freeholder’s role and carry out all of the necessary tasks to manage the property.
A buyer may accept an indemnity policy if you want to sell quickly. This insurance will provide financial cover should difficulties arise because of the absent freeholder. However, there is still a risk that the price of the property could be affected however, and if you have time, you should consider obtaining a vesting order.
How to buy freehold from an Absent Landlord?
As a leaseholder, you may have the right to buy the freehold from your landlord. This right exists even if your landlord is absent.
To qualify, at least half of the flat owners must join in with the purchase, or both flat owners if there are only two flats.
If you cannot serve a notice on the landlord because you cannot locate them, a court application for a vesting order is made instead. This must be accompanied by evidence showing the steps that have been taken to try to locate the landlord.
If a vesting order is made, you and the other leaseholders can apply to the court known as the First-tier Tribunal (Property Chamber) for the freehold. The court will set the amount of the premium that you must pay.
Once you and your fellow leaseholders own the freehold, you will be able to:
• Extend your leases
• Eliminate ground rents
• Arrange buildings insurance
• Collect service charges
• Carry out repairs and maintenance
How do I extend my lease with an absent freeholder?
If you are eligible to extend your lease, you still have the opportunity to do so even if your freeholder is absent.
First, you must try to find them, including by checking Land Registry and Companies House records, contacting old addresses and placing an advertisement in relevant newspapers.
Engaging an experienced leasehold solicitor is recommended. If you ask us to help, we will check that you have done enough to satisfy the court that the freeholder is absent. We will then apply to the court for an order extending your lease.
You will need to instruct a specialist leasehold surveyor to prepare a valuation of the premium. Based on this valuation, the court will set the amount you must pay for the lease extension. It may allow you to subtract your costs from the payment, although this is not guaranteed.
