Life After You Buy Your Freehold: the New 999-Year Lease

You've reached the finish line. You're tired. Buying the freehold of your building has required more work than you and your neighbours anticipated.

Time to rest, right?

Wrong!

It's time to starting reaping the benefits of having Collectively Enfranchised your block of flats by granting new 999-year leases to the leaseholders that participated in the freehold purchase.

Many owners of flats tell me that they bought their building freehold years ago -- sometimes it's 10 or 15 years ago -- but the resident-owned freeholder never granted new 999-year leases to participants.

The more time that passes after your freehold purchase and without the granting of new leases, the greater is the scope for confusion.

When you and your neighbours join forces to buy your building freehold, you should set up a company limited by shares to act as the entity acquiring the freehold, ie- the "Nominee Purchaser". You and the other participating flat owners become the shareholders, ie- the owners, of the company.

The new freeholder has a right to grant leases and it should get on with the task of creating 999-year leases for participating flats.

Any flat in the building that opted not to join the freehold purchase project does not get a new lease. This leaseholder carries out with his/her existing lease, which is still fully valid. It's just that now there's a new freeholder that owns the building.

So what should go into the new 999-year lease?

There's no reason to rewrite the lease if the wording of the old lease does the job. But buying one's freehold presents a valuable opportunity to eliminate any historic defects and to include clauses that address important issues not covered in many old leases.

Many blocks of flats that have no Reserve Fund (also known as a Sinking Fund) insert a clause into the new lease that says the freeholder has the right to create and maintain such a fund. Any sizable residential building should have a Reserve Fund.

If you look around London at the many beautiful 100-year-old red-brick mansion blocks, you will usually find that the best-maintained buildings are those with a Reserve Fund. Many of the buildings that are badly run and whose leaseholders experience panic and disarray when major works such as roof repairs are required are those blocks without a Reserve Fund.

Another clause to include in the new lease is about "mutual enforceability". This clause says that a leaseholder has a right to compel the freeholder to enforce on other leaseholders the obligations contained within the lease. Some mortgage lenders complain if this clause is missing.

I highly recommend that your new lease contain a clause on wooden floors. It should say that the leaseholder must get written approval from the freeholder before removing carpets and installing wood floors. The clause should also state that the leaseholder must install adequate sound-deadening underlay and must get prior written approval of the proposed underlay from the freeholder before work may begin. This is an important clause because of the many complaints about noise from people living in a flat beneath neighbours walking on wood floors.

Some blocks of flats use the creation of the new 999-year lease as an opportunity to improve the quality of life for residents by restricting the hours during which noisy renovation works may be carried out.

Some modern leases say, for instance, that no noisy works may be carried out on Saturday or Sunday and that weekday noisy works are restricted to the period from 8am until 6pm. Some leaseholders go even further by creating a new rule within the lease that there can be no noisy works during an identified lunch time break on every weekday. A word of caution on this last point - be sure to consult all leaseholders before creating such a "no-noisy-works-during-lunchtime" rule since decreasing the permissable period of time for noisy renovation works increases number of days the works will last. Increasing the number of days of a renovation project can end up causing even more distress to neighbours, many of whom are at work during the day anyway. Also, the greater the number of days of a renovation project, the larger is the expense to the leaseholder that is getting the work done. So there's balancing act to achieve here.

Another important clause to have in your new lease is one that enables the freeholder to recover from the service charge account any legal fees incurred as a result of service charge debt collection or other reasonable legal fees.

I have seen things get very messy in some beautiful old mansion blocks prior to an Collective Enfranchisement, because the old landlord failed to chase after non-payers of service charges, partly because the lease did not provide the freeholder with a right to recover legal fees from the service charge account. Any owner of a flat that runs up service charge arrears should be compelled to clear his/her account and also pay any legal fees incurred by the freeholder in pursing the debt collection action. But sometimes the freeholder cannot recover the legal fees in this way. In such a case, the legal fees should be refunded to the freeholder from the service charge account.

Creating a new 999-year lease is often the first big transitional task for most resident-owned freehold companies. It can often take six months, because you will want to consult first with leaseholders and compile a list of best-practice clauses that need to be inserted.

But don't spend forever on the creatio of the new template lease for your building. It's best to get on with it in the first year following the freehold purchase. You and your neighbours have other transitional work ahead of you. Your shiny new 999-year lease will help set the scene for improving management of your building.

If you'd like help in creating a new 999-year lease, feel free to contact me at www.rosettaconsulting.com.

Comments

[link building services]

When you and your neighbors get together to buy the freehold building, you must create a partnership limited by shares, to act as an entity to acquire the freehold, ie the purchaser. You and other participants will become joint owners, ie the owners of the company.

[LittleLeonor]

Have no enough cash to buy a car? You not have to worry, because this is real to receive the mortgage loans to resolve all the problems. Thence take a bank loan to buy everything you require.