Most buyers know the purchase of a leasehold property is more involved that a freehold one but they rarely spare a thought for what might happen when they come to sell. As well as a complex conveyancing process and a more selective buying audience, there’s the matter of the freeholder themselves.
Freeholders sometimes vanish or become uncontactable (frequently if they have been declared bankrupt or if they have minimal value in the freehold). While this is great for a quiet life when the leaseholder is living at the property, the involvement of a freeholder is intrinsic in a smooth sale.
Many leaseholders come to us if their freeholder has gone missing and ask ‘can you sell a property with an absent freeholder?’ If you find yourself in this situation, here’s the advice that Open Property Group recommends:-
If a leaseholder is missing, unresponsive or insolvent, they can be classed as absent. A freeholder may also die intestate and with no next of kin, which can cause an issue. Red flags include phone calls that always flip to voicemail, emails that bounce back or go unanswered and letters that are returned to the sender. Also take note if demands for ground rent or service charges stop, and if you’re not sent details of the annual buildings insurance policy.
Leaseholders should actively try and locate their freeholder by checking HM Land Registry’s property ownership files, contacting block managers, solicitors and past owners, scouring the internet, searching social media and by using a property genealogist or tracing agent to track them down. Even if there’s never a reply, leaseholders should always keep written evidence of efforts to contact the freeholder, including if it’s via a property manager, block management company or a solicitor.
Absentee freeholder insurance provides cover for leaseholders in a number of situations, such as if changes have been made to the property without the freeholder’s consent and if ground rent has gone unpaid. It also provides protection should a freeholder reappear in the future and bring about litigation. A buyer’s solicitor may request absentee freeholder insurance as a compulsory part of a purchase.
A freeholder is responsible for the safety, upkeep and maintenance of a property’s communal areas and failure to keep these to a good standard can devalue a leasehold property. Additionally, it is the freeholder’s job to grant permission for changes and the right to keep domestic animals. In the absence of a freeholder’s ‘gatekeeping’, properties can be damaged to their detriment.
Leaseholders should also examine the lease terms to identify if there is a ‘Licence to Assign’ clause. This may stipulate that a leaseholder will need the freeholder’s permission to sell the property.
An absent freeholder can scupper a sale, even if they’re out of the picture. Practically, a freeholder will be asked by the solicitors involved to contribute to the Management Information Pack via a LPE1 form. A missing freeholder makes this information harder to obtain and may slow a sale down.
Property buyers will be wary of an absent freeholder as many mortgage lenders will not grant a home loan if the freeholder isn’t in communication. An absent freeholder also means a new leaseholder’s questions about alterations, lease extensions and requests will go unanswered.
The problems are doubled when it comes to buildings insurance. Leaseholders who can’t prove their freeholder has insured their building will find it difficult to complete a sale, while an absent freeholder means the leaseholder will have to pay for their own buildings insurance (a cost usually covered by the service charge). By virtue, the new leaseholder will become responsible – or co-responsible – for organising the building and estate’s upkeep.
Based on these aspects, a buyers’ solicitor may advise they drastically revise their offer downward or even abort the sale as it will be classed as a problem property.
As well as the LPE1 form in the Management Information Pack, sellers are required to disclose the contact details for their freeholder, along with details about their property, the condition of their building and whether they’ve ever complained to the freeholder in the TA7 form. The solicitor will also want a copy of the buildings insurance policy
Failure to disclose accurate information can lead to a property misrepresentation claim being levied by the buyer. As a result, the seller may be required to pay financial compensation.
A freehold property is generally worth more than a leasehold property – especially ones selling with a short lease. Even when the freeholder is absent, the leaseholder can try and buy the freehold.
Leaseholders in apartment blocks where two-thirds of the flats in the building are held by qualifying tenants, and where 50% of the owners are onside, can collectively apply to the County Court for a ‘vesting order’ under Section 27 the Leasehold Reform, Housing and Urban Development Act 1993. This is also known as ‘collective enfranchisement’.
In cases where the freeholder has breached a covenant relating to repair, maintenance or management, or where a manager has already been appointed by a court for at least two years, a leaseholder can try and obtain the freehold under Section 33 of the Landlord and Tenant Act 1987.
Both approaches will require the leaseholder to prove they have made reasonable efforts to trace the freeholder, hence why all attempts to make contact should be in writing or at least recorded.
Leases can still be extended if the freeholder is missing – a sometimes worthwhile exercise if the lease is for 80 years or less. If a leaseholder can prove the freeholder is absent, they can apply to the County Court to bypass the need for service of the initial notice to extend their lease.
Both buying the freehold or extending the lease will make a property more saleable in the short and long term, so they are options worth exploring - even if the freeholder is absent, although we appreciate this may be cost prohibitive.
If the thought of tracking down a missing freeholder, extending a lease, applying to court or buying the freehold sounds too costly and long-winded, consider selling to a professional property buyer. Open Property Group is a specialist in purchasing properties where the freeholder is absent. We won’t ask a leaseholder to make any changes, instead buying ‘as is’. It’s the ideal solution if you need to sell home quickly.
We’d love to discuss the details of your leasehold property and make you a cash offer. Contact Open Property Group today.
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