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Freeholders have absolute ownership over a home and the land on which its situated, but leaseholders can own the property for a set number of years. But if the freeholder is missing or otherwise absent, this can create several problems for maintaining and selling the property. This guide shows how it’s still possible to get a competitive and fast sale in this situation.
- What is an absent property freeholder?
- How an absent freeholder complicates selling a home
- Mortgage issues with absent freeholder properties
- Solutions for dealing with an absent property freeholder
- Will you pay Capital Gains Tax on your house or flat?
- How to make your property more attractive to potential buyers
- Your choices when selling a home with an absent freeholder
- Queries and answers about selling with an absent freeholder
What is an absent property freeholder?
In order to explain what an absent property freeholder is and how this could make selling a flat or house harder, it’s important to first explain the difference between a freehold and leasehold property.
Freehold properties are houses, flats and other types where someone owns the building as well as the land on which it is located. Sometimes, freeholders will lease out their properties to other people so that they can work or live in them, typically for a set number of years.
Leasehold properties as mentioned by the Home Owners Alliance, by contrast, are those where the owner only has possession of the property for a set amount of time as specified in a lease agreement that they sign with the freeholder, and they’ll pay the freeholder a ground rent each year until the lease expires. At that eventual time, full ownership of the property can revert to the freeholder.
If you are a leaseholder of a house and flat and cannot get in contact with your freeholder, and have been unable to do so for an extended amount of time, they are considered absent. As this guide explains, this can create some obstacles when trying to sell your freehold home.
How an absent freeholder complicates selling a home
Not being able to locate your freeholder can make it hard to identify where your ground rent is going, as well as possibly putting the burden on you to pay for repairs in common areas that the freeholder would usually be liable for funding whenever they are able to be contacted.
But an absent freeholder can create problems with trying to attract buyers, because some of them will consider this type of property to be a "problem" that is not worth owning.
For example, a buyer might not be willing to face the potential of having to fund common area repairs in the event that the freeholder continues to be missing for months or years after they purchase your leasehold property, because it could far exceed their planning budget.
Buyers could also be wary about making an offer to buy a property where the freeholder cannot be found, yet still facing a legal obligation under the lease agreement to pay the ground rent to the missing freeholder. They might find the situation very dubious, and the stigma and legal uncertainty involved with having an absent freeholder could be enough to end a potential sale.
Another problem associated with trying to sell a home where the freeholder cannot be identified is with the buyer seeking a mortgage, and the next section of this guide details this hurdle.
Mortgage issues with absent freeholder properties
Unfortunately, the complications involved an absent freeholder can make it harder for buyers to obtain a mortgage for your leasehold home unless the potential buyer is willing to meet certain conditions.
Many private buyers need to obtain loans to cover the cost of buying properties, but some lenders might be wary of granting a mortgage to buy a flat or house where the freeholder cannot be located, because of the various legal problems and other questions that are involved. If a buyer can’t get the funds they need to buy your home, they will have to withdraw their offer.
Some mortgage lenders might ask the buyer to obtain indemnity insurance, which could cover any legal costs that may occur in the event that you sell your home but the freeholder later appears and tries to assert their ownership over the property, including any requirements in the leasehold agreement. This insurance will usually cost a few hundred pounds, but some buyers might not be interested in, or be able to afford, purchasing it, and lose interest in your home.
Still, other home loan companies might simply believe that properties with absent freeholders are just too legally uncertain to be a good lending opportunity. For lenders, their primary concern is whether they’ll be able to resell a home in the event to recoup their costs in the event that the company funds a mortgage but the lender cannot keep up with the payments. The threat of a freeholder returning and asserting their ownership of a property after it’s sold is often more than enough for many mortgage lenders to decide against approving a home loan.
Solutions for dealing with an absent property freeholder
If you are the leaseholder of a house, flat or other property where you can’t find the freeholder, there are a few steps you can try to either find the owner or sell without tracking them down.
Note that none of these steps are compulsory when trying to a sell a property where the freeholder is absent. Indeed, a speedy way to sell such a home without having to exert any effort is getting in touch with a quick property buying companies. These businesses, such as LDN Properties, can make competitive and swift offers to purchase almost any type of home, including leasehold properties where the freeholder can no longer be contacted.
Get the Right to Manage
One approach is to use authority given to leaseholders in a law known as the Commonhold and Leasehold Reform Act 2002 that lets them apply for a "Right to Manage" the building in which they live. If successful, the Right to Manage would transfer the management of the property from the absent freeholder to the leaseholder, for example all of the people living in a block of leasehold flats. To start this process, you’d have to pay a £100 fee for submitting the application to a tribunal, and they will make the decision on whether or not to grant the application.
Apply for a Vesting Order
Leaseholders have authority under part of The Leasehold Reform, Housing and Urban Development Act 1993 to seek what’s known as a "Vesting Order" that authorises them to buy the property’s freehold or alternatively to secure an extension to their lease agreement.
You’ll be required to apply to a court for approval of a Vesting Order, and you’ll need to prove that you have made a good faith attempt to track down the home’s absent freeholder.
In the event that there are several leaseholders, for example people living in a block of flats where the freeholder is missing, they will all have to agree to pursuing the Vesting Order, and this strategy can fall apart if any of the leaseholders objects to it.
If the court does approve the Vesting Order, it will then usually refer your situation to a tribunal where an independent panel will try to determine how much money you’ll have to pay in order to buy the freehold. The court will hold on to this money until such time as the freeholder might reappear and then give it to them. Overall, this can be quite a lengthy process and the total legal costs that are involved can quickly become several thousands of pounds.
Obtain the freehold under Section 33
Alternatively, leaseholders could try to exert authority they have under The Landlord and Tenant Act 1987, in particular Section 33 that allows them to obtain a property’s freehold when the existing freeholder has violated the terms of the lease agreement – such as failing to meet their obligation to pay for speedy repairs of any problems that occur in the building’s common areas. Whenever a freeholder is not fulfilling these obligations, they will be considered absent.
You’ll have to apply to a court to get a Section 33 order that would eventually transfer the freehold of the property to you, and this can be quite a time-consuming process.
If the Section 33 is granted, the court will effectively act on behalf of the freeholder and they will ask a valuer to come up with an amount of money that the leaseholders will have to pay for the acquisition of the property, which is a further expense that you will have to take into account.
Try to locate the freeholder
As discussed on the Peter Barry website, another way to deal with an absent home freeholder is to try and track down the freeholder. Unfortunately, this can be a long and sometimes expensive process that has no guarantee you will find them.
There are a number of ways to try doing this, including looking up the title deeds for the property, where contact details might be listed for the freeholder and their legal representative. Similarly, you can conduct some simple internet searches for the freeholder’s name that can sometimes help with generating an email address or telephone number to reach them.
You can also search various records such as court notifications of bankruptcies and obituaries to see if your freeholder is mentioned and you can learn what has happened to them.
If your leasehold home is managed by a property company, it’s likely that you should be able to reach another staff member who you can ask for information on the freeholder’s location.
Will you pay Capital Gains Tax on your house or flat?
Even with an absent freeholder, you should be able to sell your property, which then raises questions about whether you will be liable for paying any tax on the transaction.
One common tax that can apply to property sales is Capital Gains Tax, which the UK government might make you pay on some or all of the profit that you make when selling. Note that the tax charge is often only applied to the profit, sometimes also referred to as the gain, and not the hopefully larger sale price that you are ultimately able to secure for your flat or house.
Still, there are some situations in which you might be able to either lower or completely eliminate the amount of Capital Gains Tax that you’ll be expected to pay when selling your home. It is worthwhile speaking with a financial professional about what these options might be.
How to make your property more attractive to potential buyers
Even if you can’t engage with the freeholder of your house or flat when trying to sell it, there are still some straightforward and no-cost, or very low cost, ways to hopefully increase the perceived value of the property discussed further in this Homebuilding.co.uk article, which could make buyers increase the price they offer for your home.
First impressions count, and if the outside of your home has chipped paint, missing roof tiles, broken glass or other visible flaws, it will likely make potential buyers think the property is worth less, and they will lower their asking price or lose interest entirely. The same is true if the interior of the home is cluttered and dirty, because this will make the property seem less valuable.
You can address this situation with minimal time, cost and effort, simply by repairing any small problems and tidying it up. Remove clutter from rooms inside and make sure they are all clean, whilst fixing any issues with the outside of your home so that it looks its best to visitors. These are easy tasks that can have a positive impact on how potential buyers view your property.
It’s possible that your house or flat might have much larger problems, such as the presence of asbestos, storm damage, and a long list of other issues. These issues might discourage buyers from making an offer, so you’ll have to consider whether you have the resources available to fix them prior to selling. Buyers might view your property more favourably if the problems have been remediated, but many sellers simply won’t have the funds or time to do such work. And that’s perfectly fine – in those cases, quick buyers can often still give you a swift and fair sale.
Your choices when selling a home with an absent freeholder
Once you are settled on selling your absent freeholder home, a crucial choice that you’ll be required to make is deciding which of four typical methods you’d like to use.
The methods are typically using a property auction, selling via an estate agent, trying to sell on your own, or selling to a fast home buyer. You will discover that there are distinct advantages to each of the four choices, but that some of the methods also have some rather obvious disadvantages, such as taking more than a year before getting a serious offer from a buyer.
To find out which of the selections might best suit your individual wants and needs, write down what you consider to be the most important factors about the sale, such as whether you can accept having to pay any commission, how long you can wait before receiving a serious offer from a buyer, and your target sale price. Then compare these details against the specifics of the four methods explained below and you should be able to identify the closest match.
Using a property auction
An auction can be risky, because you have no idea whether your home will sell, or if you’ll be able to make a profit on the sale. If your property does not receive any bids then it will be considered unsold, and you’ll have to start over with trying to secure a buyer for it.
Selling this way might take many months, because you’ll have a wait of several weeks at least between the day that you list your home for sale and the day on which the auction happens. If your property does sell, the buyer then usually has at least 28 days to sign all of the required paperwork and undertake their other required steps to complete the transaction.
Our guide discusses at length how to sell your property at auction and provides useful advice for the key steps.
Selling via an estate agent
Using an estate agent means little work for in finding a buyer, because they will be responsible for generating interest in your property, including hosting viewings to give potential buyers tours of the property, and fielding offers, ideally taking one through to exchange of contracts. Some of the key questions you should consider asking an estate before choosing this route are discussed in our useful guide – Questions to ask your estate agent.
This is often far from the speediest way to sell a home, because you could be waiting for more than a year before you receive a serious offer from a buyer that will ultimately be finalised.
Remember that homes with absent freeholders can create problems with buyers who will need mortgages to pay for the purchase of the property. Many people who find out about your home through an estate agent will likely be private buyers that will need to get approved for a loan to fund the transaction, and if they can’t get a mortgage, they won’t be able to buy the property.
Trying to sell on your own
When you sell solo, this means you will have to do all of the work required – everything from advertising your property through to hosting viewings and sorting through an offers. This can be a large undertaking and it can create a lot of stress for you whilst also taking up time and money.
It’s also a very slow way to sell any type of property, because the typical timeline for selling a house or flat without any assistance can be many months or even more than a full year.
The only obvious benefit of selling on your own is that you won’t have to pay any commission, but that saving could be wiped out by the expenses you’ll face in trying to sell your home. Instead, consider selling to a fast home buyer because these companies give you a way to get a competitive and speedy sale of your property and without charging you any commission.
Selling to a fast home buyer
Fast buyers have this name because they’ve got the ability to make immediate purchases of properties without needing to wait for many weeks or months to first get approved for a mortgage that will pay for the purchase of your home. This can cut the usual timeline for selling to a handful of weeks, and that includes exchanging contracts and paying you the proceeds.
There are a number of pros involved with selling to a fast buyer, including the fact that they are able to make fair and speedy offers no matter the type, size, shape, condition or age of the house or flat. For example, LDN Properties has been buying homes throughout the UK for more than a decade and has considered many varied purchases, such as homes with absent freeholders, flats with cladding, fire-damaged houses,
Also, quick home buyers usually never make sellers pay any commission, so you would be assured of receiving the full amount of the sale proceeds.
Top queries and answers about selling with an absent freeholder
Homeowners considering a quick sale of their property sometimes have questions that need answering, ranging from the condition a property needs to be in before selling through to selling with tenants. These are questions we’re asked about selling with an absent freeholder:
