What does a Bona Vacantia freehold mean for leaseholders?

This is another diversion away from what I normally post into the leaseholder and management company area I’m involved with in my personal life.

Today, I want to talk about bona vacantia and what it means for the leaseholder, but first of all I’d better explain what bona vacantia is.

The Crown essentially owns all land in the UK and when, for example, you buy a house, you get long-term use of the land it's on by decree of the Crown. Technically the Crown still owns the land but this is largely irrelevant in most circumstances and won’t affect you at all.

If you live in a flat, however, you generally lease the flat from a freeholder for a period of years (99, 125 and 999 years are common lease lengths). If that freeholder gets into trouble — maybe he goes bankrupt if he’s an individual or, if he has a company, it goes into receivership — it’s possible you’ll find yourself without a freeholder and the freehold itself will become bona vacantia and revert to the Crown.

This is going to cause disruption and concern for leaseholders. For one thing, you might have problems selling or remortgaging a flat if the freehold is bona vacantia. It shouldn’t make too much difference in reality but solicitors and mortgage companies get nervous about it. A solicitor may advise a buyer against proceeding and a mortgage company may either demand an indemnity policy is taken out (the best outcome) or refuse to provide a mortgage altogether (the worst outcome).

It is worth noting a few things about a bona vacantia freehold:

  • The Crown will not take on any of the responsibilities of the freeholder. They will technically ‘own’ the freehold but will not manage it in any way whatsoever. As a leaseholder you are now on your own.
  • If the freeholder is responsible for repairs to the building, you will have to step in and take over that responsibility until a new freeholder is found.
  • If the freeholder was responsible for insuring the building it is very likely the building will no longer be insured. You will have to get together with the other residents and insure the building. Urgently.

When the freehold vests with the Crown, you may be able to buy it. The Crown will often sell the freehold to leaseholders at market value. At the time of writing ‘market value’ is 15 times the total ground rent for the building in question. If you can afford it and you can get the support of the majority of leaseholders, you should do this, not least to allow you to sell and remortgage your flat without undue hassle. But owning the freehold is good thing anyway; you can extend your leases for virtually nothing rather than having to pay a freeholder a hefty fee to do so.

In some circumstances there is however another potential complication. If the freehold company has gone into receivership and a bank has a fixed charge over the freehold (like a mortgage), they may dissolve the freeholder’s company, sending the freehold bona vacantia, and yet still retain control of the freehold . In such circumstances, you can’t buy the freehold from the Crown because the receiver remains in control of the via the fixed charge, yet you’ll still be without a working freeholder until the receiver chooses to sell the freehold to you (or someone else). This is a crap situation.

Astonishingly this is perfectly legal. It’s immoral of course and only an immoral receiver would do this — unfortunately that’s most of them. What they’re effectively getting away with is dumping all their responsibilities, causing you hassle and expense in the interim, possibly preventing you from selling or remortgaging, yet still having the audacity to sell you (or someone else if you don’t buy it) the freehold at the end of it.

Of course it shouldn’t be allowed and it’s something that needs to change but, if you find yourself in such circumstances, your only option is to wait. Somebody still needs to manage the building, collect service charges, take out insurance and uphold the leases against breach in the interim, so either employ a managing agent or set up an RTM company and manage the building yourselves.

Bona vacantia is no reason to panic unduly. There are solutions but your life might get a little more complicated for a while. Just stay calm and think it through. Good luck.