What does an Absent Landlord mean?
An absent landlord/freeholder is simply one that is not around – this could be due to the fact that the freehold is owned by a company which has long since been dissolved or an individual who may have simply forgotten about their ownership, particularly if they own a large portfolio of property.
The freeholder of course may not actually be missing and it is worth investigating further, for example undertaking a search of the electoral roll or instructing search agents in an attempt to locate them.
Not only could this resolve the issue but it is also important to show that reasonable steps have been taken to locate the freeholder and to prove that they really are missing if a Court application is to be made for an extension of the term of the lease or a purchase of the freehold (see later).
Why is it an issue?
If the freeholder is not around quite simply they will not be able to carry out any of their obligations under the lease, for example repairing and insuring the building or resolving disputes between leaseholders. This means the property may fall into disrepair and cause issues later with a sale or mortgage of the property as well as the practical implications of the disrepair.
The freeholder may also reappear in the future and attempt to enforce the terms of the lease which could lead to forfeiture (where the lease is brought to an end by the freeholder) or the enforcement of unpaid ground rent.
These risks can make buyers and their mortgage lenders nervous and they may be reluctant to proceed with the purchase of property where there is an absent landlord. This can be particularly troublesome if the freeholder is responsible for insuring and repairing the structure of the building.
Absent landlord indemnity policies
Some of the above issues can be resolved by offering an absent landlord indemnity insurance policy. Absent landlord indemnity policies are specially formulated insurance designed to protect against potential litigation brought by the freeholder should they return seeking ground rent or to enforce lease covenants.
It may also be possible to take out a specialist buildings insurance policy to provide cover in the situation that flat owners are responsible for their own insurance and one of them does not do so resulting in damage to the building.
Whilst this covers the financial situation there is also the day to day practical considerations for example the repair and maintenance of the building. Some tenants of buildings pull together to deal with insurance and the repair and maintenance of any shared areas themselves. Although this can work on a practical basis this does not resolve the legal implications referred to above.
My lease is short (typically less than 80 years of the term remaining) and needs extending or I wish to purchase the freehold – what can I do if the freeholder is not around?
Leaseholders of long leases have a statutory right to extend the term of their lease subject to satisfying certain criteria. An extension can be agreed with the freeholder informally (but obviously this is not possible if the freeholder is absent) or more formally under the Leasehold Reform Housing and Urban Development Act 1993. There is a procedure contained within this Act to be followed where the freeholder is missing. As such you can take advantage of the statutory rights you would otherwise have had should the freeholder be around.
Similarly an attempt to purchase the freehold could be made. This can present challenges as to purchase the freehold 50% of the long leasehold owners need to act collectively. If there are only two leases both must act together. This would involve an application to the Court where the freeholder is absent and eventually the Leasehold Valuation Tribunal to determine value if the Court is satisfied the freeholder cannot be found.
This process is likely to be far more lengthy and costly than a lease extension where the landlord is not absent.
Are there any other options for extending the lease?
There are other avenues that may be explored – for example it may be the freehold is owned by someone who is an un-discharged bankrupt, or is in the name of a company in liquidation or administration, then it may be possible to serve a notice on the trustee in bankruptcy, or the administrator of the company who can deal with the request.
If the freeholder has died, then the executors or administrators will be obliged to deal with the request.
If there is a complete intestacy, the Treasury Solicitors’ office may be able to deal with this. They can also help if the freehold was held by a company which has been dissolved.
Considering purchasing a property with an absent landlord?
First and foremost you must consider that this situation may not be acceptable to many mortgage lenders. Even if you are a cash purchaser now any onward buyer may not be and this could create issues for you with a sale of the property down the line, similarly if you need to raise mortgage finance on it.
It may be you can convince the lender to proceed by way of an indemnity insurance policy as referred to above but be particularly careful if the lease is short. It would be prudent to ask the seller to deal with or at the very least commence the lease extension process the benefit of which can be assigned to the buyer.