The freeholder vanishes: it's not so much a flat buyer's fantasy, more a nightmare

For a start, writes Melanie Bien, who will pay for repairs and has anyone arranged buildings cover?
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The Independent Online

A freeholder who lets you live in your leasehold property and doesn't interfere every five minutes is most homeowners' 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 re-imbursement 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.

Yet 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 the result of an increasing number of absentee freeholders who can't be tracked down, so buyers have no proof that the building is insured. And without this proof, lenders won't grant 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."

In most 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.

One Independent on Sunday reader, Liz Llewellyn, encountered this problem. She has just exchanged on a two-bedroom flat in Finsbury Park, north London, but the purchase very nearly fell through.

"My solicitor needed evidence that buildings insurance was in place to satisfy my lender, but we couldn't get hold of the freeholder," she says. "I contacted the freeholder's solicitor myself to try to speed things up, but he was incredibly unhelpful. Meanwhile, the Halifax, which was selling the property because it was a repossession, kept threatening to put it back on the market if I didn't proceed within seven days."

Ms Llewellyn was buying one of three flats in a converted house. In desperation, she turned to the other leaseholders to get a contact number for the freeholder, but they were unable to help: one had had no contact with the freeholder for eight years, the other for 20. Both were insuring their own properties because they didn't know whether the freeholder was doing so.

Ms Llewellyn then tried to track down the freeholder herself. She contacted the Land Registry, used details on the draft contract and trawled through the phone book before she was successful.

"The freeholder said she'd left it to somebody else to send the necessary documents to my solicitor, but this hadn't happened," says Ms Llewellyn. "After four phone calls, I got the piece of paper I needed. It turned out that she had been insuring the property, although she hadn't asked the other leaseholders for the money, so their flats had been insured twice for no reason."

At least Ms Llewellyn got it all sorted out before she lost the flat - albeit just days ahead of the Halifax's deadline. Another north London homebuyer, Suzanne Norman, was not so lucky, losing out on the Stoke Newington flat she was trying to purchase and being left £1,000 out of pocket.

"It took ages for my solicitor to find out whether the property was insured or not," she says. "It turned out that the other flat owners in the building had taken out indemnity insurance to cover themselves because the freeholder hadn't insured the building."

The estate agent advised Ms Norman to take out indemnity cover herself, saying this was "not that unusual". But she received conflicting advice about whether it was a good idea, so decided to pull out.

"The agent called back and said I could meet the freeholder and discuss the problem with her. But it was a month too late; I no longer wanted to go ahead, even though the freeholder did agree to insure the property.

"I lost quite a bit of money but I have no regrets whatsoever about pulling out."

That other leaseholders didn't have to pay a service charge should have "rung an alarm bell", she says, though at the time she'd been pleased that she wouldn't have to fork out for this extra cost.

When buying a leasehold prop- erty, find out as soon as possible about the freeholder. Ask leaseholders who their buildings insurance is with, and whether they have regular contact with the landlord. If they don't know whether the building is insured and haven't spoken to the freeholder in years, you may want to look for another property.

It may be worth looking for a leasehold property that comes with a "share of the freehold". This gives you a say in how the block is run, enables you to extend your lease and means you don't have to pay expensive service charges.

ABSENT LANDLORD, LEGAL BIND

Adam Nichols and his wife Felicity had trouble selling their flat in Bounds Green, north London, just before Christmas last year because they couldn't get hold of their freeholder.

Once they had found someone prepared to buy their top-floor flat in a converted end-of-terrace house, the sale was delayed as various legal documents flew back and forth between solicitors.

"An absentee landlord sounds a bit dodgy to prospective buyers," says Mr Nichols. "Our buyer was worried about it but our agent assured her it was a common occurrence."

Because they'd had no contact with their freeholder during the three years they had owned the flat, the Nicholses paid for their own buildings insurance and shared the cost of repairs with the neighbours in the downstairs flat. The neighbours also had their own buildings insurance. It meant doubling up on cover but it was the only option.

"We had the weird situation where we both had buildings insurance for the whole property, but there was no way round this," Mr Nichols adds. "We were lucky that we got on with the neighbours and came to an amicable agreement on repairs; otherwise the situation could have been problematic."

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