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.
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.
Click here to read more about Lease Enfranchisement and Lease Extension
Does an absent freeholder cause any legal problems?
Unfortunately the answer is yes.
· 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.
· 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 – see below
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?
The whole process involving, as it does 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.