Old leases for flats in converted houses – watch out for problems

With a rapidly expanding population and shortage of housing, since the Second World War, many houses have been converted into flats. According to the Office of National Statistics, there are over 800,000 properties where houses have been converted into flats in England. The flats created have generally been sold off on long residential leases. In

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With a rapidly expanding population and shortage of housing, since the Second World War, many houses have been converted into flats. According to the Office of National Statistics, there are over 800,000 properties where houses have been converted into flats in England.

The flats created have generally been sold off on long residential leases. In some cases the original owner of the property, when it was a house, remains the freeholder, despite not living at the property, and in effect, retaining a legal interest which is worth very little compared to the leasehold and where, in reality, the leasehold interest will never end (because the long leaseholder has the right to extend, subject to payment of a relatively modest premium).

Legal problems with older leases

If you own a converted flat and may be considering selling it, or are potentially buying a flat in a converted house, you need to be aware of important legal issues which can create significant problems and delays. The most important issues are :-

  • The remaining lease term needs to be extended

  • – this becomes an issue where a lease still has 80 years left to run, which is a long time. However, mortgage lenders have specific policies about the remaining length of leases they will lend on and it may be that the lease will need to be extended , or for there to be an agreement to extend from the freeholder at a set premium, before you can proceed. This type of issue can set the whole transaction back several months if not addressed early.
  • Lease clauses no longer valid

  • – many older leases contain clauses which, whilst acceptable to lenders when the lease was created, are no longer acceptable to them now. This is particularly annoying – you should ask your conveyancer, whether as seller or buyer to check the law as soon as possible. Insurance clauses and responsibilities of the freeholder are particularly common issues. It may be that a deed of variation of the lease3 will be needed, and that will add extra cost, hassle and delay, so the earlier the problem is spotted, the better.
  • Absent or unco-operative freeholder

  • – when a house is converted into flats and the flats have been sold on long leases, there will still be a freehold interest, but it is worth comparatively very little. The freeholder may have lost interest in undertaking his, her or it’s contractual obligations in the lease, or may even have disappeared. That creates a potential big issue, so should be checked early and resolved if at all possible.
  • Physical changes internally to the flat

  • – this is a common issue. The lease may say that only a certain type of flooring is allowed or you may find that walls in the flat have been altered or removed or other internal changes, on checking the lease plan. If that’s the case, it could be a building regulations issue or freeholder consent may have been required. If it’s a breach of the lease, this is also a legal risk, which may prove unacceptable to a mortgage lender, even if the buyer is not overly concerned. A deed of variation or indemnity insurance may be needed, and again, this type of problem can cause delay, extra cost and frustration.

Overall, it is always important to remember that with the vast majority of residential sale and purchases, there will be a mortgage lender involved. A buyer would generally be unwise to overlook any of the above problems in any event, as this simply stores up the problem for when that buyer comes to sell. Even if the buyer wants to overlook the issue, lenders tend to have strict rules about these issues, so it is important to deal with any that arise early. If selling a property, instruct a conveyance early, perhaps even when you start marketing, to check the lease and deal with any issues so that when you get a buyer, there are no big delays.

jswede-sbFor further advice or assistance, feel free to get in touch with me.

Conveyancing • James Swede

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