You Still Need A Lease…Even If You’ve Just Bought The Freehold!
Even when you’ve purchased the freehold, there are still two important truths you must never forget:
- You will continue to own a lease on your property.
- Time will still be ticking away on that lease…so sooner or later you’ll probably need to extend it (especially if you want to sell your flat).
Buying the freehold can be a great move for leaseholders. It typically enables you to:
- easily extend your lease without the hassle of dealing with a separate freeholder/landlord
- get rid of your freeholder/landlord so you can have greater control of what happens at your block
- reduce your ground rent to virtually nothing.
But don’t assume you can now sit back and relax. You still need to consider how long your lease has left to run.
Why Do I Still Need A Lease If I’m Now a Freeholder?
Buying the freehold means buying the land that your block sits on. But the collective aspect of the purchase means that it’s you and your fellow leaseholders that have bought the land.
To facilitate the freehold purchase, you and your fellow leaseholders will likely have formed a company. So it’s the company that owns the freehold – and you each own a share or shares in that company.
Furthermore, you all have to continue living happily as neighbours. Ideally, you all need to get on. And the best way for that to happen is for you all to continue abiding by the rules of your block – such as ‘no pets’, ‘no noisy or anti-social behaviour’ and so on. Those rules (or ‘covenants’) are contained within your lease.
The lease will also feature lots of important information about your property, such as:
- which garage or parking space (if any) is allocated to your flat
- rights and responsibilities regarding the communal halls, stairways and the grounds of the property
- arrangements regarding maintenance
- ‘easements’ that allow access to each other’s flats for repairs (usually in case of an emergency, such as a water leak)
- much more… (such as the right to connect your TV to the building’s aerial).
So the lease is really important from a day-to-day living point of view. Yes, you can and should review your lease. (Buying the freehold is a useful trigger for this.)
And yes, you can all potentially agree to change some of the rules/covenants in the lease after the freehold is purchased.
But you can’t simply have a quick vote and casually pencil some changes in the margin – there is a defined legal process. Extending your lease is a good time to consider whether any changes need to be made using a Deed of Variation (often the same deed that will be used to extend the lease length). Find out more here about how to vary a lease.
Above all, never forget – your lease has a defined length and it’s getting shorter every day. There’s nothing you can do to stop the clock. So sooner or later, you’ll probably need to extend your lease (unless it’s already very long, such as 999 years).
You may not be able to sell your flat easily if the lease is too short (even if you’ve bought the freehold) – possibly because the prospective buyer might not be able to get a mortgage on a short lease.
Many lenders won’t lend on properties with a lease under 90 years. Ideally, they want a lease that extends for at least 40 years beyond the term of the mortgage.
How Do I Extend The Lease On My Flat?
Extending the lease after a freehold purchase is comparatively simple (but not without its pitfalls so get expert advice). Lease extensions involve a two-stage process when the leaseholders own the freehold:
- Stage 1 – the freeholder (being the leaseholders who purchased the freehold) draws up the new lease and offers it to the individual leaseholders
- Stage 2 – the leaseholders accept and register the lease extension with HM Land Registry.
And remember, now you’ve bought the freehold with your fellow leaseholders, you’re almost wearing two hats…
As a co-freeholder (or shareholder in the freehold company), you and your co-freeholders are offering to extend the lease and to reduce the ground rent to a peppercorn. (Why does there still need to be a ground rent? What is a peppercorn rent? Read this blog post for a quick and handy explanation.)
As a leaseholder, you’re being given the opportunity to decide whether or not to accept the offer from the freeholder. This may at first seem odd, given that – as a leaseholder – you part-own the freehold.
Stage 1: Extending The Lease
There are two ways that we can extend your lease:
- Option 1. Create a Deed of Lease Extension. This is a document that you keep with your existing lease. Effectively it says, “everything contained in the old lease is still applicable, but extend the lease term to X years.” This is the quicker, easier and more cost-effective way of extending a lease.
- Option 2. Draw up a brand new lease from scratch. This takes longer and costs more.
The length of your lease extension depends on what you and the directors of the freehold company have agreed. It makes sense to extend the term to 999 years so you (and whoever buys the flat after you) won’t have to worry about lease extensions for the foreseeable future.
Obviously, the more flats that are involved, the longer it will take to extend all the leases. It will also take longer if you decide to change any other terms of the lease – such as removing clauses about sub-letting, for example.
Stage 2: Registering Your Newly Extended Lease
This is the part that some leaseholders forget! They instruct a solicitor on behalf of the freehold company or co-freeholders to extend the lease, pay the bill for stage 1 (thank you)…but then forget that their lease will still carry the old shorter term until the new deed or lease is formally registered with the HM Land Registry.
Stage 2 takes as long as it takes HM Land Registry to do its work. This may be many months; delays at HM Land Registry are not unknown. (Ask any conveyancing solicitor!)
Once your Deed of Lease of Lease Extension – or your new lease – is registered then your lease is officially extended and you can celebrate.
It’s worth noting that the Stage 1 and Stage 2 legal work could be carried out by two different lawyers at Coles Miller:
- one would act for the freehold company or co-freeholders (which will include you)
- the other would act for you in your role as leaseholders in registering the lease in a non-advisory capacity.
It doesn’t make the process any longer or more costly – because the work still needs to be done, no matter which solicitor does it. But as a firm specialising in leasehold matters, we’re very serious about the distinction between acting for you as a freeholder and acting for you as a leaseholder.
Sending Us Your Counterpart Lease
As part of Stage 2, you will need to send us your counterpart lease. Let me explain what that means…
The lease on your property comprises two parts:
- The Original Lease – this is the part of the lease that must be signed by a director of the company that you all formed when you bought the freehold (or by all of the co-freeholders if you purchased it in joint names). The signature(s) must be witnessed.
- The Counterpart Lease – this is the other part of the lease. You must sign it (with a witness) and send it to us if you wish us to register the lease.
Terms of Engagement, Proving Your Identity
Before we can act for you in Stage 2, we need to send you a copy of our Terms of Engagement. If you’re happy with them, you’ll need to sign them.
You’ll also have to provide evidence of your identity, using either:
- a current signed passport
- a current UK driving licence (new- or old-style)
- a Benefit/Pension Book or original notification letter from the Benefits Agency
- an HM Revenue & Customs tax notification
- a Firearms Certificate.
You’ll also need to provide proof of your residential address. This evidence could be:
- one of the above ID documents that includes your residential address
- a recent utility bill (but not a mobile phone bill)
- a Council Tax bill
- a bank or mortgage statement.
Two separate documents are needed to prove identity and residence. One document cannot perform both roles.
These identity and residential address checks may seem like a chore but they’re a legal duty for us as solicitors. The law requires us to carry out these checks under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
There are various ways you can provide us with the information. You can either:
- Contact us to arrange a time for you to visit our office so we can take a copy of your identity documents there and then.
- Post your identity documents to us or pop them through the letterbox at one of our offices. We’ll then send them back to you by special delivery.
- Provide us with a picture of you holding your photo identification next to your face, so that we can see the likeness. Please then provide proof of your address in PDF form. These digital files can be emailed so it’s a quick and convenient way of completing the task.
- Provide us with a certified copy (provided it has been certified as a true copy by a UK lawyer, banker or accountant). Copies should be marked ‘original seen’, dated and signed. The name and address of the person signing must be written on the copy.
Are You A Politically Exposed Person?
This is another legal duty we’re obliged to carry out as solicitors. We have to ask you whether you are a Politically Exposed Person (PEP) or if you represent them or are in business with them. A PEP is defined as “an individual entrusted with prominent public functions, other than as a middle-ranking or more junior official.”
So, as odd as it may sound, we have to ask you whether you are (or are in business with) a head of state, a government minister, an MP, a political party leader, a member of a supreme court or central bank, an ambassador, chargé d'affaires, general, admiral and so on.
As part of the preliminary paperwork, we have to send you a table comprising a list of prestigious titles (Head of State, Prime Minister etc). The job titles are in rows, along with various columns detailing any possible relationships you may have with these people. The result is a medium-sized table of tick boxes. It looks a tad officious at first but don’t worry – all this box ticking can be dismissed with a quick signature. It takes barely a minute, if that.
How Much Does It Cost To Extend The Lease?
The cost of a lease extension depends on a number of factors:
- the number of flats in your block
- how many of the leaseholders/freeholders want to extend the lease
- how many want to band together to instruct Coles Miller (using the same law firm for all the leases creates economies of scale)
- how you extend the lease – whether it’s a Deed of Lease Extension or a brand new lease
- how many other clauses need to be changed along with the lease term.
Recently, we helped some leaseholders who had bought the freehold of their block in Poole a few years earlier.
We acted for five of the six leaseholders in the block. The sixth, who lives outside the Bournemouth/Poole/Christchurch area, used his local law firm.
The five leaseholders for whom we acted paid significantly less than the sixth leaseholder would have paid because the fees for Stage 1 were divided five ways.
Get Expert Legal Advice
Buying the freehold will help making extending your lease easier. But as you will have gathered, even these relatively simple lease extensions have their complexities. And you can save a significant amount of time and money by being well prepared and by consulting a specialist leasehold solicitor.
Get expert legal advice from leasehold specialist Nick Leedham, an Associate Solicitor based at our Bournemouth office.
