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Contract before Freehold Transfer

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Contract before Freehold Transfer

Postby Flattie » Mon Sep 19, 2016 6:19 am

A house has been converted into 3 Flats and there are 3 leaseholders A, B and C. A, B and C also own the freehold directly on the title register.

The freeholders have been conducting maintenance outside of service charge provisions, instead using freeholder monies. They are all happy with this arrangement however, as there is little trust between them they have decided to draw up a Schedule of Work contract for upcoming works and sign it. Completion of all works in this Schedule of Works will bring a rather dilapidated building up to a reasonable standard. The works will take approximately a year.

However, leaseholder B is selling and wishes to transfer the freehold at the same time to include D.

Q1. Is it possible for A, C and D to sign an enforceable Schedule of Work contract prior to freehold transfer whilst D is not yet a freeholder.

Q2. If the answer to Q1 is yes, would such a contract need to be signed as a deed.
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Re: Contract before Freehold Transfer

Postby atticus » Mon Sep 19, 2016 7:07 am

I would look at a contract between A, B and C agreeing how they will each contribute to the cost of the work. This can provide that if any sell their lease and interest in the freehold, they will procure that the buyer executes a deed of novation, in effect taking over the seller's payment obligations.
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Re: Contract before Freehold Transfer

Postby dls » Mon Sep 19, 2016 1:11 pm

The answer is 100% that this need to be done professionally.

Yes it can be done. It is not straightforward, and for many years professionals had great difficulty with this sort of thing.

Getting it a little wrong can gouge big holes in the value of all of the properties.
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Re: Contract before Freehold Transfer

Postby Flattie » Mon Sep 19, 2016 4:00 pm

I can see you are suggesting that an agreement may be made by A, B and C and then have B's interest/obligations 'novated' to D.

I may not have been entirely clear and probably inferred D is a future unknown buyer, so sorry if I did that.

D is known, and is able to sign something now. Can something similar to a co-habiting Declaration of Trust be signed prior to freehold transfer to take effect after the transfer?

It wouldn't specify contractors or prices but merely the maintenance items to be completed and the order in which they are to be done. (Perhaps specifying 2 of 3 are able to act as freeholder and carry through the agreement.)

It just seems a bit silly to sign an agreement between A, B, C and then another separate novation agreement if it could be done in one hit.
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Re: Contract before Freehold Transfer

Postby atticus » Mon Sep 19, 2016 4:38 pm

Has D exchanged contracts to purchase this flat?

If he has, then it may be appropriate to proceed with D taking the place of B. If he has not, then I would advise him not to do so until contracts are exchanged.
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Re: Contract before Freehold Transfer

Postby theycantdothat » Mon Sep 19, 2016 5:18 pm

This is the sort of arrangement where either you do it on the back of an envelope and hope for the best or get the documentation drawn up by a competent lawyer.

The OP asks: "Can something similar to a co-habiting Declaration of Trust be signed prior to freehold transfer to take effect after the transfer? " The answer is "possibly, but a bit tricky" because of the technical difficulty of dealing with interests before you get them and the traps for the unwary when drawing up conditional agreements. If D is in fact already involved and wants some input into what is going to happen and C does not, the way round it is to have a deed between A, B and D which says that on D acquiring the relevant leasehold and freehold interests they will enter into a deed as set out in the schedule. The schedule sets out the "Schedule of Work contract" drawn up as a deed.
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Re: Contract before Freehold Transfer

Postby Flattie » Mon Sep 19, 2016 5:19 pm

B/D have not yet exchanged.

A is reluctant to sign the TR1 for freehold transfer until some sort of agreement/way forward for maintenance is produced.

B/D will certainly not exchange until TR1 is fully signed up.
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Re: Contract before Freehold Transfer

Postby Flattie » Mon Sep 19, 2016 5:25 pm

theycantdothat wrote:This is the sort of arrangement where either you do it on the back of an envelope and hope for the best or get the documentation drawn up by a competent lawyer.

The OP asks: "Can something similar to a co-habiting Declaration of Trust be signed prior to freehold transfer to take effect after the transfer? " The answer is "possibly, but a bit tricky" because of the technical difficulty of dealing with interests before you get them and the traps for the unwary when drawing up conditional agreements. If D is in fact already involved and wants some input into what is going to happen and C does not, the way round it is to have a deed between A, B and D which says that on D acquiring the relevant leasehold and freehold interests they will enter into a deed as set out in the schedule. The schedule sets out the "Schedule of Work contract" drawn up as a deed.


That sounds reasonably logical to me. The reason I mentioned DoT for cohabitation however is I clearly remember signing one long ago and it was a single document signed prior to exchange mentioning us as owners before we actually became owners?

Is it not possible in a single deed?

It definitely sounds like a job for a professional.
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Re: Contract before Freehold Transfer

Postby theycantdothat » Mon Sep 19, 2016 5:50 pm

The thing about my proposal is that the drafting is easier. Whilst two documents are involved, the operative part of one is very simple. It just goes something like:

A Deed dated [ ] made between Fred Jim and Tom whereby Fred Jim and Tom agree that if Tom completes the purchase from Ted of the leasehold property X and Ted's interest in the freehold property Y they will immediately after completion enter into a deed a draft of which is set out in the schedule to this deed

The Schedule

[set out deed]

Usual execution bits


The draft of the deed set out in the schedule can be drawn up on the basis that the owners are Fred, Jim and Tom without introducing any complications

If completion never takes place the deed just becomes a deed letter.
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Re: Contract before Freehold Transfer

Postby theycantdothat » Mon Sep 19, 2016 6:12 pm

Flattie wrote:A is reluctant to sign the TR1 for freehold transfer until some sort of agreement/way forward for maintenance is produced.


Ideally, when the freehold interest is owned collectively by individuals who are the lessees, a deed should be executed which regulates how the freehold is held and deals with the practicalities of joint ownership. Such a deed should include a provision that the trustees must be flat owners and impose on the trustees an obligation to execute a transfer whenever there is a change of lessee. In the absence of such a provision a co-owner wearing his hat as a freeholder can hold things up and effectively block a sale until his demands are met. The problem can be got round by either not passing on the freehold interest or by the outgoing lessee simply assigning his equitable interest. However, that is messy as it leaves the outgoing lessee still on the title and buyers' conveyancers will not be keen on the idea. However, the threat of going ahead in that way may make the reluctant freeholder see reason.
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