Replacing cross over lease with managment company?

by Readers Question

8:40 AM, 27th October 2015
About 3 years ago

Replacing cross over lease with managment company?

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Replacing cross over lease with managment company?

cross over leaseholdI bought a ground floor flat 3 years ago, renovated it and let it. The building is a Victorian villa that was split into two flats 20 years ago and a ‘cross over lease’ makes me the owner of the freehold in the first floor flat and the owner of the first floor flat the owner of my freehold.

We have the leasehold on our properties. Both of us let our flats. The owner of the first floor flat (FFF) has owned theirs 6 years and has neglected the exterior. Over 3 years I’ve not managed to get him to do anything, so I got a solicitor involved and to cut a long story short I’m now buying the FFF flat off of him. It seemed the only way forward given the effect the dispute was having on the value of our properties and my mental health and bank account!

So I’m in a quandary as due to the budget changes I was trying to sell off my properties ! But now I’m buying the FFF to safeguard the value of my  ground floor flat (GFF)! Ho hum!

Then it struck me that I don’t think crossover leases are user friendly. I’m buying the FFF for cash, I have a small mortgage on the GFF. Can I dissolve the lease? Chucking such an ill thought out incumberance in the bin and starting over? Can I form a management company? How do I do that, do I need to pay off the GFF Mortgage too or will TMW work with me, (after all it’s in their interest), do I approach them ? I will have to talk to them soon due to the dispute, even though I’ve effectively solved the matter. One day I could sell both flats and keep the freehold and operate the management company. I’ve no idea… The rest of my portfolio are freehold houses and I’ve no intention of expanding due to that dastardly budget decision!

Would be so grateful for advice please

Lise



Comments

Neil Patterson

8:48 AM, 27th October 2015
About 3 years ago

Hi Lise, This is not an area of expertise for me so please do check everything out with the Leasehold Advisory Service and a solicitor.
>> http://www.lease-advice.org/

Just simplistically to make it easy, give you options of selling separately and something lenders understand I would want one Freehold and two leaseholds and a very simple management company in place.

You could just have it as one Freehold building and lenders will still lend, but the option to sell the flats separately is not there.

Depending on what you decide if it is a low LTV TMW should work with you, but worst case scenario you could remortgage at the same time as sorting out the tenure.

S.E. Landlord

10:01 AM, 27th October 2015
About 3 years ago

If you own the freehold and the leases to the two flats you can create new leases for both flats to replace the existing leases. You will be able to revise the conditions in the leases and also the remaining term.

The solicitor acting for you in changing the lease would write to your lender to obtain their agreement to the new lease and I would expect your mortgage lender to agree to it.

Look for a solicitor who has written new leases for other blocks of flats.

Graeme

13:36 PM, 27th October 2015
About 3 years ago

Entirely agree with S E Landlord 's comment above.

Lisé Willcox

15:25 PM, 27th October 2015
About 3 years ago

Hi
Thanks for the comments so far. The lease was difficult to work under because the landlord (owner) of the above flat refused to do basic restoration eg pointing and roof work, the lease directs the freeholder (me the owner of the ground floor flat) to take over the work in this stalemate situation. As it was 10-15k repairs and I would loose the first 10k of legal expenses at court trying to recover that (so my solicitor said) and given the upstairs owner was also a retired solicitor I felt I only had one way forward. However it took 3 years and a restricted insurance policy to get anywhere. My last threat was to involve his mortgage company ... He put the flat on the market and I bombarded the estate agent with builders surveys (a surveyer would be £800+) I've spent £1500 on legal sand surveys, eventually I agreed to buy it at a lower price, but higher than I feel it's worth, that said I've got him out of my hair and I can now do the much needed repairs.

But I want a management company so that every month an amount goes into a pot and the repairs are regularly picked away at. Annually the differences can be balanced and the insurance paid etc. This way I can sell the FFF in year or so (I'm trying to reduce my portfolio due to that daft budget change) this I hope means that I will never have to beg, nag or take to court my neighbour. As a landlord I work very hard to get things right and was shocked to see the conditions his tenants lived in with broken windows and damp. Fire regs ignored etc (they won't report him), so we will all overcome but I don't want the lease at all it relies to loosely on both parties being hounerable and different view of 'neglect'. As the manager of the management company I would never neglect the guttering and pointing as its basic to caring for a stone building.
TMW have said I would have to repay their mortgage first. They won't change fro leasehold to freehold in the current package. I can just afford to own the property outright and pay the £1000 redemption, but I would need to get a mortgage on both flats within 8 months. I wonder how long aka agent co must exist to qualify for morgageability. I will speak to my solicitor once I've bought the property about any ideas and solutions I pick up on here. I'm very grateful to you all and 118 as just venting has helped !?

Graeme

16:03 PM, 27th October 2015
About 3 years ago

Hi Lise,
I have read your post a couple of times. You really shouldn't have to repay your mortgage to TMW. You say that they won't go from leasehold to freehold in the current package - but the actual flat itself should not ever become freehold. Let me explain.
Once you have bought the FFF you can then restructure everything. The most common set-up is as follows:- You set up the Management Company - your solicitor can do this for about £150. The 2 leaseholders (OK- just you at the moment since you will own both flats!) are the directors of the company. You then create a new freehold title for the land on a new Land Registry title number. The company then holds/owns the freehold. Then you issue new up-to-date leases for both flats that are linked to the freehold title/company. The new leases can be for 999 years, abolish ground rent etc. and of course you can ensure that the maintenance provisions/sinking fund that you want are written in to them. Once all that is done, perhaps after some upgrading work to the FFF, you will then be able to sell it as a leasehold flat with a 50% share of the freehold. The new leaseholder will become joint director of the company with you on a 50/50 basis.
I personally have been through this process twice. Both my mortgages were with TMW and I didn't have to redeem them.
I have subsequently sold both flats concerned. Both were snapped out of my hands at a premium. "Shares of freehold" are still relatively uncommon in the grand scheme of things.
You really do not want to end up with a freehold flat. Lenders do not like them and they are difficult to sell. Any flat without a lease that is linked/accountable to the others in the building can suddenly become the problem occupier because they are the one without the rules/guidelines - even though that might be you!
Hope this helps.

S.E. Landlord

16:57 PM, 27th October 2015
About 3 years ago

As far as TMW are concerned it is a new lease with a longer term and up to date conditions. It is not a freehold flat as the freehold is separate to the flats' leases.

Ian Ringrose

18:51 PM, 27th October 2015
About 3 years ago

Management companies have to submit accounts etc that all have costs. If one of the lease holders will not agree to the work where there are just two lease holders you are no better off with a management company then a cross over lease.

Lisé Willcox

19:13 PM, 27th October 2015
About 3 years ago

Reply to the comment left by "Graeme " at "27/10/2015 - 16:03":

Gosh what wonderful advice I'm impressed. Yes I get that and very happy that on Thursday I will be 'illuminating' my poor battle tired solicitor of what Ive gleaned. Bravo! Infact a friend now wants to buy the FFF as he knows I'm trying to do the right thing here. The tunnel now has lights in it .... Onwards ! ?

Puzzler

20:40 PM, 27th October 2015
About 3 years ago

It would be more usual to make it a shared freehold between the two flats. You need a specialist solicitor.

If you own both why do you need a company, just open a savings account. If you sell one make sure the buyer is beholden to contribute in the lease or sale contract.

Joe Bloggs

23:42 PM, 27th October 2015
About 3 years ago

got no idea what this is about. if you own all the interests i.e. leases and freehold you have complete control and the terms of the leases are effectively irrelevant and subsumed your complete ownership. why bother drafting new leases...that can wait until you sell.


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