Buying out the intermediary landlord (and freehold) when owning an UNDERLEASE

[trusaiyan]

Hello peeps

This is the situation.

Person A owns a 3 bedroom underlease house with short term length (99 years from 1978) which is approx 57 years left. It's a terrace from the later 1970s, where the whole private development was conducted under a head lease/underlease system, whereby the council retains the freehold title to each property, but each underlease pays the head leaseholder ground rent. The developer has since sold the head lease to another random company that specialises in buying leases/freeholds, and is now the head leaseholder/intermediate landlord.

• Underlease is owned by Person A
• Head lease is owned by a random company that bought it from the property developer (who originally owned the head lease).
• Freehold title is owned by the local council that never sold the freehold to the developer.

Person A wants to sell the property, but it is regarded as unsellable until either the lease is extended (other than cash buyers), the intermediate leaseholder "bought out" or possibly the freehold title is also owned.

The ground rent which is paid to the intermediate land lord/head lease holder is minimal, but it is collected yearly.

The intermediate leaseholder (the company that owns the head lease and receives ground rent from all the underleases on the development) offered the "leasehold" to Person A for around 1000GBP a few years ago (plus legal fees).

The council is also willing to sell the freehold, probably for around a similar price but that is yet to be determined, but it said it will sell it for a reasonable price.

The general questions we have are:

1. If they buy the "leasehold" from the intermediate landlord, what are they actually buying in the context of them already owning the underlease? We understand this to mean they would be buying out the intermediate landlord, but what would they actually own if they did this? Would they own a new lease, i.e the head lease? Or would they merely extinguish their underlease ground rent requirements to the intermediate landlord, but if so what do they actually own (do they own a new or different lease or not)? They already own the underlease, that is a fact that is shown in the title deeds, so does this mean they would in fact be buying the head lease (but if so would that not make them in receivership of all ground rents, which can't therefore be true)?
2. If they "buy out" the intermediate landlord, are they still subject to the term length of the head lease, or would this be extinguished (thus why purchase the freehold)?
3. Would the head lease term length typically be much longer, like ten times longer, than the 99 year term lengths of all the underlease properties on the development? I've downloaded the title register to each title, but to an untrained eye I cannot determine the head lease length in the document.
4. Other people on the development said they had to buy both the leasehold and freehold to make it marketable, but as a general rule would it be better to buy the freehold, the leasehold (buying out the intermediate landlord) or both in this kind of circumstance?
5. If they buy the freehold, but do not buy out the intermediate landlord, would they still have to pay ground rent and be subject to the 99 year term length of the underlease (so they would own the underlease, as they do now, but also the freehold title)?
6. When buying out the intermediate Landlord, would the underlease generally be merged with the freehold title once all are acquired?
7. Do they have any legal right as an underlease house owner to EXTEND the underlease instead of buying it out?
8. Is it typically expensive and very time-consuming to extend the lease formally through the courts instead of buying out the intermediate landlord informally (which will cost less than 2000GBP)?

Any thoughts would be welcomed, ideally from trained professionals/conveyancers.

[dslippy]

In general, I am against these buying out arrangements. They create unending complications. I acceot that I am in a very small minority of people who think this. Your questions merely scrape the surface.

1 They buy the head lease from the intermediate landlord. No new lease or interest is created. They would then own the sub-lease and the portion of the head lease applicable to their property.

2 They own the head lease, and own whatever term is contained therein.

3 The head lease could be any length greater than the sub-lease.

4 You probably have to buy both. Note that the head and sub-lease will remain.

5 Yes

6 In theory, yes, but in practice, no. The lease and under lease will both contain covenants which need to survive whatever you do.

7 Probably - but more information would be needed.

8 Best do it direct, not throught the court if you have everybody's agreement.

[trusaiyan]

Many thanks, that answers a lot. Can you also clarify:

1. So does this mean then that EACH property on the estate has its own individual head lease title (as well as underlease), or does it mean that there is only one head lease title but you each own a percentage of it? Would the title register state the proportion/percentage you own?
2. Can you briefly explain why buying out informally, if I read you correctly above, creates "unending complications"? Is it because the intermediate LL can somehow make terms worse?
3. Your last comment suggests doing it directly (which I assume means informally) is the best route potentially in these circumstances, which contradicts your first statement that suggests informal route is bad. She basically needs a quick sale and wants to get rid of the asset (so she merely wants to make it sellable to the buyers solicitors or mortgage company). She has bought another house with cash but has a potential buyer of the short underlease house, so she doesn't ultimately care about the terms as long as it's sold quickly and for a fair price.
4. From your experience, if she did statutory enfranchisement (if she qualified), would it typically take longer than the informal route. Some online sources online say 6-12 months which is way too long.

Thanks again

[dslippy]

1 There is one head lease. That title has several sub-leases - defined by the plans rather than any proportion.

2 Buying the head lease and freehold means that on any sale and purchase the parties still have to fully examine three titles, calculating in each case which covenants are still binding.

3 No route is good. I live in an area full of leasehold titles. They were designed to work as they were, and did work. As the freeholds have been bought, people who thought they were simplifying matters have found that generally they have only complicated things. Anyone setting out to sell quickly should sell what they have. Unless things have changed substantially, a purchase of the head lease and freehold interest could easily take several months.

4 Statutory enfranchisement can take much longer, and is dependent on several additional requirements.

[trusaiyan]

Many thanks again.

1. For absolute clarity, are you saying there is only ONE head lease (not multiple head lease titles), but the head lease can be sold in portions to multiple people based on the number of properties/sub-leases contained within it? I.e the head lease which includes the particular property of Person A can be bought by Person A, whereas Person B could buy another portion (i.e pertaining to another property) of that head lease? They then both own the head lease to their respective underleases? So in reality, if the development had 100 houses there could be 100 separate owners of the head lease? It's slightly unclear how the head lease can be split up and sold in parts if I understand you correctly (is this shown on the title register?).
2. Would the head lease, if that is also subject to a term length, also be subject to ground rent payable to the Freeholder? The ground rent is approx £30 a year from the underlease to the head lease, but does this mean the freeholder would also receive a ground rent from the head leaseholder?
3. Would the legal costs of a statutory enfranchisement probably be the most expensive anyway? The long time totally precludes this option we think, so we will not go down this route.
4. We're now thinking the best route is to, as you say, NOT do any procurement of leases/freeholds, and instead to simply give a reduced price to the buyer based on only selling the underlease (providing their solicitor/mortgage company accepts it). And then the new buyer can buy the superior lease or freehold or both should they so desire. But in order to give the discount, we need to value the freehold and value the leasehold. What's the best way to do this? Find out what other houses on the dev were sold for (in terms of head lease and freeholds)? The council told us they would need to get the freehold valued to give a price, and to get it valued in £500
   + VAT. Secondly, the head lease was offered for around £1000 over ten years ago. But we can't get an accurate price unless we pay for leasehold valuations, which we don't want to do. So I'm thinking if we can say get a guideline figure for both (either based on what similar were sold for) or based on some type of online valuation?
5. Am I correct in saying, however, that if the new buyer of Person A's underlease wanted to do a formal enfranchisement, the courts would extinguish restrictive covenants (if there are any) whereas going down the informal route would generally not?