Absent freeholders – problems and solutions

What causes the absent freeholder issue?

The problem of an absent or missing freeholder tends to arise most often where houses have been converted into flats. With such conversions, typically the freeholder would have sold off the flats on very long leases, thereby capitalising on the value of his or her interest. Whilst remaining technically as freeholder, the freehold value is minimal when compared to the long leasehold interests sold off. In such scenarios, the freeholder may lose interest or even forget about owning the freehold, he or she might have moved to a new address or even passed away.

These situations can continue for many years, especially because many of the flat owning leaseholders may not see it as a major issue. They don’t tend to pay service charges and may even be ignorant that the freeholder will typically have the role of arranging buildings insurance for the overall building, and then seeking reimbursement from the leaseholders.

Some leaseholders may also, in some ways, see the lack of involvement of the freeholder as advantageous in that they may be tempted to make changes to the flat which would require freeholder consent without worrying about it, on the basis that a lack of a freeholder reduces the risk of action being taken for breach of lease covenant. Unfortunately, this approach can prove to be short sighted.

Legal risks and problems where freeholder is absent or disappeared

There can be major implications when selling a property where the freeholder is absent. This can lead to significant delay in a sale proceeding or even an inability to sell. The other contexts where problems can arise, often tied in with selling, are where a lease needs to be extended. A residual risk arises where the freeholder has not arranged any buildings insurance and the building structure is damaged whilst uninsured.

• problems selling property generally – issues can arise based on the below secanrios, but a buyer may be put off by the freeholder being absent or the lease being relatively short or the buyers mortgage lender may not be prepared to proceed, even where absent freeholder indemnity insurance is available and obtained.
• breach of lease covenants – it is not unusual for a long leaseholder to have breached the terms of the lease, taking the view that they own the flat to all intents and purposes and can do what they want, typically in terms if internal alterations. On sale, the buyers solicitors will almost certainly raise questions about any changes or breaches of the lease, and where these apply and the freeholder is absent, the obvious remedy of a formal deed of variation of the lease to reflect the changes may not be possible, because the freeholder is not around. This may lead to the whole transaction failing.
• property indemnity insurance not necessarily the answer – in some cases a buyer or lender might accept an Absent Freeholder Indemnity Policy, but many buyers or lenders will not accept this as a solution. If acceptable, cover is usually a one-off fee which gives ongoing cover, but a buyer should appreciate that when he or she comes to sell, they may well face the same problem and lose sales.
• no freeholder creating problem with lease extensions – with long leases, whilst there is an in principle right to extend, the premium payable for extending rises significantly once the lease has less than 80 years left to run. It is common for leases to be extended at the time of sale, but for this to go through with any speed, a premium needs to be agreed, by consent, with the freeholder. Where the freeholder is absent, this obviously creates a major problem.

How to resolve problems with a missing freeholder of your flat

The ultimate resolution of an absent freeholder situation is to apply to court. The necessary form of application will be for Vesting Order in the County Court. It is a prerequisite for an application for a vesting order that as leaseholder you have made sufficient attempts to try and contact and locate down the freeholder and have sent a formal notice to the freeholders last known address asking for confirmation of correct address details. In many cases this may not be possible, but it is a step which must be shown to have been taken.

One of the complications with an application for a vesting order may be other leaseholders, wince ultimately the application will be asking the court to transfer the freehold to the leaseholders, who will have to pay for it and money will be lodged with the court which the freeholder can claim if he or she subsequently reappears. As a consequence, the applicants need to ensure that all other leaseholders within the property are in agreement with application and this may prove problematic.

If you need advice on any legal issues or concerns regarding an inability to find or contact your freeholder, we offer an experienced and cost effective service. Please do get in touch. Call our property and conveyancing solicitors on 03456 381381.