Why are leasehold garages delaying my house remortgage?

You own a freehold house and want to remortgage it. Nothing about that sounds unusual.

Then the conveyancer discovers that garages associated with the house are held under a separate lease. They sit beneath a neighbouring coach house, the lease requires a contribution towards buildings insurance and the freeholder is extremely difficult to contact.

The remortgage is suddenly dependent on information that the owner cannot readily obtain.

How can part of a freehold house be leasehold?

A property does not always consist of one uncomplicated freehold title. A house may be freehold while a garage, parking space, accessway or other associated area is held under a separate lease.

This can arise on a coach house development where garages beneath another property are granted on long leases to neighbouring homeowners. The arrangement may work without obvious difficulty for years. The owner uses the garage and pays little or no rent, so there appears to be no practical problem.

The legal arrangement still matters when the property is sold or remortgaged. The new lender is considering the complete security offered for its loan, not just the main freehold title.

Why does the lender need information from the freeholder?

The garage lease may contain obligations concerning insurance, repair, contributions and the respective responsibilities of the garage owner and the coach house owner.

A conveyancer may therefore need to establish:

• whether the coach house and garages are currently insured;
• whether the policy covers the relevant risks and interests;
• whether the owner’s insurance contributions are paid up to date;
• whether any ground rent or other sums remain outstanding;
• who is responsible for repairing the structure above and around the garages;
• whether the lease contains the rights needed to use, access and repair the garages; and
• whether any consent, certificate or notice is required for the remortgage.

If the freeholder or managing party does not respond, the problem is not simply administrative delay. There may be no reliable evidence that important lease obligations are being performed.

Missing and unresponsive are not necessarily the same

An important distinction must be made between a genuinely missing freeholder and a known freeholder who replies only occasionally.

A freeholder who cannot be traced may engage particular legal procedures and potentially particular forms of indemnity insurance. A freeholder whose identity and address are known but who is slow, inconsistent or unwilling to respond presents a different factual and legal problem.

The label should not be chosen merely because correspondence has gone unanswered. The conveyancer must establish who owns the freehold, what attempts have been made to obtain a response and what the lease actually requires.

The Lexsure Lender Archive’s absentee freeholder records can help professionals investigate how individual mortgage lenders addressed missing-landlord risks at the relevant time. Current requirements must still be checked for the proposed remortgage.

Can indemnity insurance keep the remortgage moving?

An indemnity policy may sometimes be considered, but the existence of an insurance product does not mean it resolves every concern.

Depending on its wording, a policy might respond to specified financial loss arising from a missing or uncooperative landlord. It does not necessarily:

• produce a copy of the existing buildings insurance policy;
• ensure that the coach house remains insured in future;
• repair the building following damage;
• force the freeholder to comply with the lease;
• create rights missing from the lease; or
• satisfy every mortgage lender.

Contingent buildings insurance may address a different risk, but its precise cover, exclusions and interaction with the main buildings policy need to be understood. The proposed lender must accept the complete arrangement.

This is why “Can I obtain insurance?” and “Will this particular lender accept the property as security?” are separate questions.

Could the lease itself be part of the problem?

The difficulty may arise solely because the freeholder is not responding. Alternatively, the review may expose inadequate insurance provisions, missing enforcement rights or uncertainty over responsibility for repair.

That could amount to a wider lease problem. Our earlier article explains how a defective lease can stop or delay a sale or remortgage.

Where access, support or service rights are unclear, the title also needs careful examination. A separate article considers why missing service rights can hold up a property transaction.

The expression “coach house” should not automatically lead to the conclusion that the property contains a flying freehold. That depends on the physical arrangement and the titles. If part of one freehold does overhang or underlie another, our article on flying freeholds and mortgage lender requirements explains why a further title issue may arise.

What should the owner obtain?

The starting point is to assemble the documents and identify the exact outstanding questions. These may include:

• the freehold and leasehold title registers and plans;
• the garage lease and any supplemental deeds;
• the buildings insurance policy and schedule;
• receipts for insurance contributions, rent and other charges;
• correspondence showing attempts to contact the freeholder;
• the report on title from the original purchase;
• the original lender’s mortgage instructions; and
• any indemnity policy obtained when the house was bought.

The current conveyancer can then separate the issues that require evidence from those that might be addressed through insurance or further lender instructions.

Why was the problem not resolved when the house was bought?

If the same title and leasehold arrangement existed when the owner purchased the house, it is reasonable to examine what happened during that transaction.

The relevant questions include:

• Was the separate leasehold title clearly identified?
• Was a copy of the garage lease provided and explained?
• Was evidence of buildings insurance obtained?
• Was the freeholder responding at that time?
• Were payments and receipts up to date?
• Was any defect or practical difficulty reported to the purchaser?
• Was the original mortgage lender told about the arrangement?
• Was the possible effect on a future sale or remortgage explained?

The fact that the original purchase completed does not establish that every future lender will accept the arrangement. Lender requirements can differ and change. But the earlier file may show whether the present problem already existed and what the owner was told about it.

This article provides general information only and is not legal advice about an individual property, lease or mortgage. The title structure, lease wording, insurance arrangements and lender requirements must be examined in each case.

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