QUESTION
I am a leaseholder of a property with a total of 7 leaseholders. 5 of the leaseholders are also freeholder as they bought the property 5 years ago. We were unable to raise funds to join in with the enfranchisement.
I have noticed on companies house they have taken out 2 bank loans using the property as security. Within the printed document it states the bank can take each leasehold as security.
Can my freeholder take out this type of loan without consulting us?
ANSWER
Obviously, in order to give a full answer it would be necessary to review all of the relevant paperwork such as the Articles of Association of the freeholder and the Loan Agreement.
The basic principle here is that the freehold title is entirely separate from your leasehold titles. The freeholder can use the freehold title as security but, obviously, the value of the freehold title is affected, for the purposes of a loan, by the income generated by the ground rents from the leasehold properties. It is likely that the Loan Agreement to which you refer has a slightly different effect than that which has caused alarm – if the freeholder defaulted in repayment of the loan, the Bank or Building Society making the loan would be able to take possession of the freehold title and would, in effect, become your Landlord until such time as the property was sold to a new freeholder. The Lender could not take possession of or have any effect at all on your leasehold title. That is within your ownership and only you can create security over that title.
I hope that puts your mind at rest but I am happy to give further detail if you would like me to review the Loan Agreement.
Charlotte Collins, Solicitor/Operations Director at Realty Law Ltd
