Absentee Landlord - A blessing or Nightmare?

A freeholder who lets you live in your leasehold property and doesn't interfere every five minutes is most leasehold owner’s dream. But when you can't get hold of your freeholder - ever - the dream can turn into a nightmare.

The freeholder is usually responsible for providing buildings insurance, with the leaseholder providing reimbursement via the service charge. This charge also covers the cost of the maintenance and upkeep of the communal areas, which is also the responsibility of the freeholder.

Insurers are receiving more and more calls from homebuyers enquiring about whether they can pay for their own buildings insurance if they purchase a leasehold property. This is directly as a result of an increasing number of absentee freeholders who can't be tracked down, so buyers have no proof that the building is insured. Without this proof, lenders won't grant a mortgage.

In many instances you can't insure the property yourself, or at least not until you move in, unless it explicitly states in the lease that this is possible…and if you haven't got insurance in the first place, your lender won't let you have a mortgage.

To add to the problem, the situation isn't always clear cut. "There is no easy answer when it comes to who is responsible for insuring the property, " says Steve Wilcox, household underwriting manager at insurer Axa. "It depends on the terms of the lease…in some cases it is the leaseholder's responsibility, but generally the freeholder provides cover and passes the cost on to the leaseholder…People need to engage a solicitor before signing the lease, to find out whether they are responsible for insuring the property. If they don't have insurance and it burns down, they can find themselves responsible for the rebuild costs. "

Having an absentee freeholder is far from ideal and seriously affects the mortgagability and therefore marketability of the Property as many lenders refuse to lend on such properties.

Apart form the concern relating to insurance, as mentioned above, there is a further problem in that the absence of a freeholder means that there is no third party who can enforce the provisions of the other Lease(s) in the building. If another Property in the building, for example falls in to disrepair or maintenance works are required to the building then there is no independent third party who can make sure that those works are done. You would have to rely on your relationship with the other tenants in the building to ensure that the building is adequately maintained and insured. Because of this problem most mortgagees do not like to lend on properties unless indemnity insurance is taken out (and even in those circumstances some lenders do not want to lend on such properties even with the benefit of indemnity insurance)

The problem of having an absentee freeholder is further compounded if the Lease term remaining for the Property is relatively short. As there is no freeholder (or his/her whereabouts are unknown) to serve the relevant statutory notices to enforce a lease extension would, inevitably be a far more lengthy complex and expensive to arrange. Provisions were set down in the Leasehold Reform (Housing & Urban Development) Act 1993 to overcome the problem of not being able to trace your freeholder. They way to do it is via a "vesting order". The most viable option (and this can be done post completion of your purchase) is to apply to the County Court for such an order with the other tenants in the building on the basis that you are able to establish that you have done everything you can to locate the freeholder. You could then, upon payment of a sum determined by the Court, acquire the freehold at a premium, leaving the premium with the Court just in case the freeholder surfaces in the future. Please note that whilst you may have the benefit of acquiring the freehold at a relatively low premium and then grant yourself a Lease extension for nominal premium, the procedure, legal costs and aggravation could be significant.

To obtain a vesting order as a leaseholder seeking to extend their lease or a group of leaseholders wanting to buy the freehold or claim their right to manage you need to make an application to the County Court. If a vesting order is to be granted evidence must be produced showing reasonable efforts to trace the freeholder.

Evidence of such efforts could include freehold Office Copies ( evidence of the landlords ownership ) showing his/her last known address to prove that s/he no longer owns this property and has moved on to address unknown or statements to confirm that a visit to the freeholder last known address has not provided a forwarding address.

The particulars of claim will need to set out whether you or the other leaseholders have served their notice of claim on the freeholder’s last known address or served such notice in the London Gazette or a local paper or a request that the Court grants a dispensation from the requirement to serve notice.

A case bundle will need to include up to date Land Registry title searches, copy leases, copy notices, witness statements, draft land registry transfer forms and other matters highlighted above.

The County Court may set a date for a hearing or the district judge may be satisfied that reasonable efforts to trace the freeholder have been made and rule on the basis of the facts as presented to him, without need for a hearing. When your case is proved, the Court will issue a judgement setting out that the freehold may be acquired by the leaseholder(s) with funds to be 'vested' in the Court and deferring the case to the Leasehold Valuation Tribunal for determination of a 'reasonable' premium.

The Leasehold Valuation Tribunal also hears many absentee freeholder cases without a full hearing by issuing directions for the hopeful leaseholders to comply with and time scales for documents to be produced by. The documents the Tribunal will need include the order made by the County Court, copy leases, the valuation for the leaseholders, and proposed TP1 land transfer form. The Tribunal panel usually consists of a layperson, a lawyer and a valuer who make their determination from not only the evidence put before them but also their experience. There is therefore little point in putting a valuation before the panel that is not prepared in accordance with current case law and reflects market trends in respect of capitalization rates and improvement rates.