posted 29 September 2005 12:36 PM         

I suppose you could have a rather odd situation where there are no leases at all and membership of the freeholder company entitles you to the use of a particular flat in the building, but this would very odd and the solicitor who drew it up must have been slightly crazy!

If you will each have a lease of your flat and a share in a separate company that in turn owns the freehold I can't see the problem. The difficulty is mainly caused by the confusion in the minds of mortgage brokers and people in lenders' offices.

The people who own the flats may not understand it either and insist that the flat is not leasehold but freehold. This is usually because they don't understand the position. Basically a lease is necessary to say which parts of the building are yours and what your rights and duites are towards the other flat owners and the owner of the building as a whole. that owner could be a company or a combination of indivudals. If the company is in turn owned by the flat owners, that is an advantge but it doesn't alter the legal point that a company is a separate entity from its members.

You have to separate the points here. If the flat was literally freehold, i.e. each of the flats had its own separate freehold of that part of the building, there would be a real problem because the flat would be unmortgageable (unless it's in Scarborough and you get your mortgage from the Scarborough Building Society!). The trouble is that a lot of people don't understand what is going on and they get it all mixed up and tell you that you can't do it.

If a separate company owns the freehold and there are leases of each of the flats then in principle that should work. You will not literally have a share in the freehold but only a share in or membership of the company that owns the freehold and that is a different thing.

If the flatowners literally have their names on the freehold title, even this is acceptable to many lenders but there can be problems which I have explained in the thread http://www.houseweb.co.uk/house/forum/Forum4/HTML/000103.html .

Nearly every major lender (with the strange exception of HSBC) has taken on board the detailed requirements set out in The Council of Mortgage Lenders Handbook. These are the points that solicitors have to check. There is particular section that deals with ownership of freehold by one or more flat owners. Each Lender produces a supplementary section (called a Part 2) for the CML Handbook with its own detailed requirements on particular points and most of the major lenders will accept jointly owned freehold and if they say they won't, we can simply quote back to them what they have said in that document.

In practice, if the particular scheme complies with the Lender's requirements we don't go into the detail of explaining it all to the lender. A company is a separate legal entity and therefore your situation is no different from a legal point of view from the common situation where the freehold perhaps still belongs to the building company that put up a block of flats.

Obviously a company owned by the residents is unlikely to want to make a profit out of its operations and so will only calculate a service charge to cover actual costs rather than adding on a lot of admin fees et. Also, when the leases get on the short side, at may be 75 years or less "your" company is unlikely to charge large sums of money to extend them. It is in those kinds of areas that the advantage of having a "share" in the freehold comes.

I think you will need to delve further with the people who are sellng the flat and ask them to produce copies of their deeds. Most properties these days are registered at the Land Registry and you can get copies from the Land Registry website. If you look for the freehold of the building and find it belongs to the company in question, you should also find at the end of the entries that there will be schedule of leases of the individual flats. If there are no leases you do have a problem, but it is most likely that there will be leases shown, including one for the flat that you are bying - you can then get a copy of the leasehold title and check that your seller actually owns it!

If then you simply approach the lender and say you are buying a leasehold flat then they will deal with it on that basis.
You are probably trying to be too clever and confusing the lender by saying you are buying a share in the freehold.

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