Freehold flats cause alarm bells to ring for most solicitors and, sometimes, rightly so.

There are two separate situations to consider when, for instance, 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, it’s usually possible for mortgages to be taken out on both flats. This isn’t an ideal arrangement as the flat owner, who has the freehold of the whole building, might be in a “dominant” position as a landlord. It would be preferable for each flat to have its lease, with both leaseholders jointly owning the freehold of the entire building.

Example Two: The upstairs flat is freehold and sits atop the downstairs flat, which is also freehold. There’s no lease. This describes the classic “flying freehold” situation, and all further references to freehold flats will relate to this type of arrangement.

There are many freehold flats in Sidmouth, and there’s a ready market for them. Agents inform me that their market value is somewhat lower than that of leasehold flats. I’ve noticed that if a buyer employs a solicitor outside of Sidmouth, who isn’t accustomed to dealing with freehold flats, the buyer is often advised against proceeding.

What’s the problem? When the freehold flats were established (typically around 30 years ago in Sidmouth), each flat owner covenanted with the other to provide support, shelter, and protection. These are positive covenants (as opposed to negative or restrictive ones), and the issue is that the burden of these positive covenants doesn’t “run with the land.” In simpler terms, they are only enforceable between the original parties. When a flat changes ownership, the new flat owner can’t be forced to honour these positive covenants.

Sometimes, there’s a stipulation in the original conveyances that when a flat changes hands, the new flat owner signs a Deed of Covenant with the remaining flat owner to uphold these positive covenants. In my experience, this arrangement tends to fade over time. Moreover, even if the original conveyances might have anticipated one flat owner insuring the whole building and recouping a share from the other, this often seems to wane, leading each owner to arrange separate insurance.

This situation is far from ideal. If you purchase a freehold flat, you can’t be certain whether the other flat owner has insured their flat adequately or at all. In the event of a significant claim (perhaps due to fire), there might not be sufficient insurance funds to restore the building.

Due to these issues, securing a mortgage on freehold flats is quite challenging. Nonetheless, in the cases I’ve overseen, I’ve rarely encountered significant practical problems since both flat owners generally have an interest in adequately maintaining the building. While I’ve outlined a scenario involving two freehold flats, there’s at least one building in Sidmouth that houses several.

I always advise my clients to introduce themselves to the other flat owners before finalising contracts to ensure they will see “eye to eye” on matters such as decoration, maintenance, insurance, and other communal concerns. I also suggest they discuss with the other flat owners the potential of converting the flats to leasehold. We undertake this exercise for our clients, and it costs roughly £1,000 per flat in legal fees and disbursements. However, it’s likely to increase the value of each flat by far more than the incurred costs, making the flats more appealing for the market and enabling potential mortgage options.

The takeaway? If you’re fond of the flat and get on well with the other flat owner(s), and you don’t require a mortgage, don’t dismiss freehold flats. They can be a viable option, especially in Sidmouth, where they often find ready buyers.

For further information, please contact David Wheaton, a Consultant Solicitor in our Sidmouth office, on 01395 577061 or at davidwheaton@wbw.co.uk.