Question about freehold purchase on a house

[susanlinton]

Hi there,


I have a question regarding purchasing the freehold on a home. My father passed away 2 months ago, and his home has a 73 year lease left. I purchased a quote from Simarc (the freeholder) and was given two options:


1. Purchase the freehold for £5,560 + £816 for their "costs"
2. Pay no premium to increase the lease to 100 years, with an increase of ground rent to £330 (from £50), only to be revisited every 10 years.


Question 1:
I unfortunately need to sell the house as there is a more2life mortgage on it that requires it be paid off within 1 year and I don't have the funds to pay it off. I would love to get some feedback on which approach would be best if I will be selling. The property value is approx £180,000 in the Newcastle area.


Question 2:
Simarc is unaware that my father has passed away, and I have heard that you need to own a property for 2 years in order to purchase the freehold or extend the lease. Does this 2 year requirement hold true only for new buyers or is it also true for properties that are inherited. If the 2 year rule applies to me, then can I simply complete the form and pay Simarc without notifying them of my father's passing? I know legally I should, but if I didn't, what would be the repercussion?


Thanks so much in advance,


Susan

[Diana M]

Re: Question about freehold purchase on a house

I'm sorry you lost your Dad a few weeks ago.

A situation like this can often trigger a feeling of urgency to sort out financial affairs before you actually have to deal with the nitty-gritty of these things.

Are you aware of the contents of your father's Will? That would be a useful starting point. Who inherits the property? Are there siblings involved?

Who is executor of his Will (if he made a Will)?

You say that the terms of your late father's Mortgage2Life agreement insist that things (money advanced) are sorted within a year of the death. Do you have a copy of those Ts & Cs?

One step at a time

Di

[susanlinton]

Re: Question about freehold purchase on a house

Hi Diana,

Yes, I'm aware of the will and have a copy - I'm an only child and the only person named as the inheritor. I'm also the executor of the will, though I have asked for my dad's solicitor's help in getting the grant of probate (which is in process). I also have all the original paperwork from More2Life detailing that when person who owns the mortgage passes on, the loan must be paid off, or the property sold in a year (I helped my dad get the loan so that he could take money out of his property to travel and enjoy his retirement).

I'm just not sure whether I should purchase the freehold or extend the lease from a sale perspective. I do not live in the UK, I live in Arizona and so it is difficult to try and maintain the house remotely (not to mention from a home insurance perspective). I'm traveling back and forth quite a bit.

Any opinions or thoughts would be very helpful.

Thank you!

[Openlaw15]

Re: Question about freehold purchase on a house

Hi Diana,

Yes, I'm aware of the will and have a copy - I'm an only child and the only person named as the inheritor. I'm also the executor of the will, though I have asked for my dad's solicitor's help in getting the grant of probate (which is in process). I also have all the original paperwork from More2Life detailing that when person who owns the mortgage passes on, the loan must be paid off, or the property sold in a year (I helped my dad get the loan so that he could take money out of his property to travel and enjoy his retirement).

I'm just not sure whether I should purchase the freehold or extend the lease from a sale perspective. I do not live in the UK, I live in Arizona and so it is difficult to try and maintain the house remotely (not to mention from a home insurance perspective). I'm traveling back and forth quite a bit.

Any opinions or thoughts would be very helpful.

Thank you!

Hell, Susan, sorry to hear of your loss, property problems.

Is this a property in England/ wales with both freehold land and leasehold land? What type of interest in the land did your father have before he passed away? What property rights/ land were transferred to you? The Will informs you of your actual rights - it should deal with the freehold gifts, and leaseholds where applicable. Who lives at the property now as they too have property rights, usually occupier rights or tenant rights.

In general:

Freehold means the land or a part of it is either owned outright, or with assistance of a mortgage. Land could entail freehold property and some of it leased out to third parties. A leasehold means a legal right to use the land subject to rent agreement. A mortgagee (ie the bank) has a right to be paid the mortgage loan as per the terms of the contract. However, if it is a beneficial mortgage (without deeds) or legal mortgage (by deed), they normally require a Court's 'Order of Possession' to possess/ sell the property. The reason for this is, depending on the mortgage loan, the land's equity is often sufficient security for the person owed the mortgage money.

[Diana M]

Re: Question about freehold purchase on a house

I'm just not sure whether I should purchase the freehold or extend the lease from a sale perspective. I do not live in the UK, I live in Arizona and so it is difficult to try and maintain the house remotely

I think you need to do some research into property prices in the area both for selling and renting options before you finally make up your mind. From what you say you have a year to do that if necessary.

A 73 year lease is considered 'short' in legal terms when it comes to pricing a property - 80 years is the tipping point financially speaking. This explains it: http://www.lease-advice.org/article/...-80-year-trap/

The other difficulty is to find a buyer who is perhaps willing to pay cash since mortgage lenders tend not to advance money on leases under 80 years.

I can't say whether you should inform the freeholder about your father's death or not, but your solicitor will guide you on that. If you inherit the property then I would expect you to 'step into the shoes' of your father when it comes to the lease extension requiring ownership of two years or more.

I suggested looking at rental options because that would generate an income but that all depends on whether it'd be a good idea or a bad idea from your tax position. You can always use the services of a letting agent to manage the property for you while you're in the US.

However that doesn't solve the issue of the current mortgage on the property. If you decided to rent it out as a long term investment you may wish to take out a BTL mortgage to pay off the current mortgage etc. A lot would depend on your personal financial circumstances.

Don't rush to make the decision without feeling you've explored all your options. You can only sell a property once

Di

[susanlinton]

Re: Question about freehold purchase on a house

Thank you so much for all of your answers. I've spoken to two estate agents and they both recommend buying out the freehold as, all things being relative, it is not a huge sum for a lease at 73 years. Short leases have been a sticking point for many house sales in the area and the value of the property will go up based on this.

I'm still not quite sure whether I can buy out the freehold as an inheritor (or if I have to wait for the 2 years of residency first). It seems to vary depending on the freeholder. My mother feels I should simply fill out the form sent by Simarc to process the freehold purchase and not mention anything. I suppose I assumed purchasing a freehold was more complicated - but the instructions ask that a form be completed and payment made, then wait 6 weeks for the completion of paperwork and payment confirmation. Is it really that straightforward?