Can I own both freehold and leases on a divided house?

by Readers Question

10:17 AM, 26th November 2014
About 4 years ago

Can I own both freehold and leases on a divided house?

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Can I own both freehold and leases on a divided house?

We are ( my husband and I ) are trying to purchase a property which consists of a basement flat and a 3 story maisonette ( a Victorian house that has been converted ).

The 2 properties are self contained. In trying to get a mortgage for each of these properties we are being told that we cannot hold both the freehold and the two leases and that someone else should buy the lease or we should set up a company to own the lease.

Our solicitor cannot see why we have to do this and thinks that the freehold could be in just one of our names. Has anybody had this difficulty before or could anyone explain why we are having this problem?

Many thanks

Rustyhouse



Comments

Neil Patterson

10:21 AM, 26th November 2014
About 4 years ago

Hi Rusty,

Yes you can technically own both the freehold and the leasehold your solicitor is of course correct.

However it is a common lenders criteria that they do not like borrowers to own both. Therefore if one or both of you on the mortgage application do hold both it is the Bank’s decision not to lend although there is no law against it.

Therefore if you need to finance a property and want to keep your borrowing options open it is best to split the ownership and or find a management company to take over.

You may find a BTL/Commercial lender willing to accept this but the costs could be greater and the amount you can borrow lower. Then you will also have the same problem when you come to remortgage.

If you do need a broker to help investigate this for you just let me know on npatterson@property118.com

Stephen Reynolds

11:55 AM, 26th November 2014
About 4 years ago

I had this problem a few years ago on a very similar property, in the end we transferred the freehold to my brother (who lives in Australia and has probably forgotten that we did this). It must be one of the daftest requirements as I still effectively control the freehold. Also if the mortgage companies are bothered about an angry freeholder should they repossess why not just add the freehold as extra collateral. Do you have someone you trust that you can transfer it to, the risk is pretty low as freehold values tend to be rather low. Before you do this you may want to redo the leases and give them 125 yrs.

Jerry Jones

12:56 PM, 26th November 2014
About 4 years ago

Trying to understand their thinking on this. What do they see as the possible problem?

Neil Patterson

13:17 PM, 26th November 2014
About 4 years ago

Reply to the comment left by "Jerry Jones" at "26/11/2014 - 12:56":

If the Bank's borrower goes bankrupt, disappears etc etc then who looks after the property.

I know you can take over the Freehold, but Banks want as little hassle as possible and assume the worst.

Ramus Wood

14:48 PM, 26th November 2014
About 4 years ago

Technically, the general rule in law is that if you owe yourself an obligation then that obligation disappears automatically by operation of law: so if I owe myself £10, then your right to demand payment of the £10 is (automatically) extinguished, as well as your obligation to pay the £10.

So their concern would be that, if their security was the leasehold properties, and you were also freeholder, you could use a technical argument that the leaseholder has ceased to exist (because you had all the rights, and owed yourself all the obligations, in both "directions").

Rather than get in a fight with the lender, just set up a ltd company (with each of you a shareholder and director) to hold the freehold. It is very simple and cheap (around £30 up-front); there are some duties such as filing annual returns etc (costs about £10 each year).

The above is a general comment and not legal advice; you should consult your own solicitor for advice specifically tailored to your situation.

Rusty Dog

16:35 PM, 26th November 2014
About 4 years ago

Thanks for the info everybody. We have decided to set up a ltd. company to sort this out.

Colin Dartnell

16:51 PM, 26th November 2014
About 4 years ago

Reply to the comment left by "Rusty Dog" at "26/11/2014 - 16:35":

I had the same thing years ago and set up a Ltd Company as you have now doing, but do shop around, don't let your Solicitor or accountant do the incorporation without first getting quotes. Normally they are much more expensive than independent internet companies my most recent company (last year) cost me just over £30 all in.

I will post the name of the company I used if Mark and Neil are ok with that.

Jonathan Clarke

2:15 AM, 27th November 2014
About 4 years ago

I own the freehold and leaseholds of two flats. Both held just in private names, both mortgaged through different lenders which never raised any objections to the set up. I pay myself two peppercorns as rent each year to comply with my obligations as stipulated in the respective leases.

The AGM in my living room each year is a bit of a non event I must admit . I`m the only one who shows so I hog the floor and just talk to myself 🙂
.

Ramus Wood

12:37 PM, 27th November 2014
About 4 years ago

Just a normal evening for you then?

Stephen Reynolds

4:07 AM, 28th November 2014
About 4 years ago

Reply to the comment left by "Jonathan Clarke" at "27/11/2014 - 02:15":

Hi Jonathan, would you mind telling us who you have the mortgages with? I have recently remortgaged one of my properties and had Hells own trouble finding a mortgage. I have 4 flats as part of a terrace with my residential property as the end of terrace. First of all I was declined because my residential property was next door, then one Co said I was over exposed as all properties were in the same street. These are large flats in East London, my LTV is around 30%. I cant believe the hassle I am getting whenever I remortgage as I feel I have done the right thing by keeping the LTV's so low on the basis that I would be able to access cheap finance.

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