Freehold flats cause alarm bells to ring where most solicitors are concerned.
There are two separate situations which need to be considered where, for example, a house has been converted into two flats one above the other.
Example one: One flat is held on a lease. The other flat owner owns the freehold of the whole building subject to the Lease of the flat that is held on a Lease. In this situation both flats are mortgagable. It is not an ideal arrangement as the flat owner who has the freehold of the whole building may be in a “dominant” position as Landlord. It would be better to have had a Lease for each flat with both Leaseholders jointly owning the freehold of the whole building.
Example two: The upstairs flat is freehold and is on top of the downstairs flat which is freehold. There is no Lease. This is the classic “flying freehold” situation and all further reference to freehold flats will be about this type of arrangement.
There are a lot of freehold flats in Sidmouth and there is a ready market for them. The Agents tell me that their market value is somewhat less than Leasehold flats. I tend to find that if a buyer is using a solicitor outside Sidmouth who is not used to dealing with freehold flats the buyer is advised not to proceed. What is the problem? When the freehold flats were set up (usually about 30 years ago in Sidmouth) each flat owner covenants with the other to provide support shelter and protection. They are positive (as opposed to negative or restrictive) covenants and the problem is that the burden of positive covenants does not “run with the land”. In other words, they are only enforceable between the original parties.
When a flat changes hands the new flat owner cannot be compelled to comply with these positive covenants. Sometimes there is a provision in the original conveyances to the effect that when a flat changes hands, the new flat owner enters into a Deed of Covenant with the other flat owner to observe the positive covenants. My experience is that this arrangement tends to lapse after a while. Also, whereas the original conveyances may have contemplated one flat owner insuring the whole building and recovering a contribution from the other flat owner this, again, seems to lapse and each flat owner arranges their own insurance. This is highly unsatisfactory. If you buy a freehold flat you do not know whether the other flat owner is insuring their flat adequately or at all so that if a major claim had to be made (eg due to a fire) it is possible that there might not be enough insurance monies to reinstate the building.
As a result of these problems, it is extremely difficult to get a mortgage on freehold flats. I have not encountered any major practical problems in the cases I have dealt with since it is in the interest of both flat owners to maintain the building satisfactorily.
I have described a scenario above where there are two freehold flats. There is at least one building in Sidmouth containing several. I always advise my clients to introduce themselves to the other flat owners before exchanging contracts to make sure that they are going to see “eye to eye” over such matters as decoration, maintenance, insurance and other communal interests.
I also advise them to discuss with the other flat owners the possibility of converting the flats to leasehold. We have carried out this exercise many times and it costs about £1,000 per flat to do it in respect of legal costs and disbursements. However, it is likely to enhance the value of each flat by several thousand pounds.
Finally, there was one Estate Agent in the town who used to claim that freehold flats were a positive thing as it meant you had to be a cash buyer to own a flat which meant that they were more socially exclusive!
The message is: If you like the flat and get on with the other flat owner(s) and you do not need a mortgage do not dismiss freehold flats out of hand. They do sell readily in Sidmouth.
If you require further help and assistance regarding this matter please feel free to contact David Wheaton on 01395 577061.