A mental image of a building sprouting wings and taking to the sky is one way to picture a flying freehold, but mention the phrase to most property lawyers and their hearts will sink. Discovering a flying freehold raises alarm bells because, without appropriate reciprocal rights between adjoining owners, they can leave both owners exposed.
What are flying freeholds and do they really need to cause such fear?
Put simply, a flying freehold is part of a freehold property that either reaches into or is built over a neighbouring property. The flying freehold owner owns the “flying” part, but not the land or buildings beneath it.
The difficulties stem from the fact that, without express agreement, each land owner has very limited rights in relation to the other’s land. In particular they cannot force the other owner to maintain or repair their property, even if the flying element is structurally dependent on the other land, or where a flying element in disrepair risks damaging the adjoining property. In these circumstances, financing either property may be difficult as lenders will want a clean title certificate. Problems can also arise where one owner wants to redevelop or carry out works because rights of access can be limited. These problems apply equally to the owner of the flying element and the owner of the adjoining land.
In the absence of express rights and obligations, there are a number of options:
1. Title indemnity insurance
Typically insurance would cover loss of value following damage due to lack of repair of the adjoining property and costs incurred in prosecuting the adjoining owner. However, it does not resolve the fact that there are no access rights and insurance may be invalidated by any redevelopment or structural alterations
2. A new mutual agreement
A mutual agreement can be put in place between the two owners, documenting the reciprocal rights and obligations. As with any positive covenant, the agreement would only bind future owners if they agree to be bound by it when they acquire the property. This can be built into the agreement and backed up by a restriction on the title register. However, the process of putting an agreement in place may be time consuming and costly, particularly where there is little or no incentive for the non-selling owner to co-operate quickly
3. Alternative structure
It may be possible to convert the flying freehold to a leasehold structure so there is only one freehold out of which a long (999 years) lease is granted to the adjoining owner. The advantage of this is that the appropriate rights and positive covenants can be included in the lease and will not be affected by a transfer of the freehold or leasehold interests. However a lease may also be time consuming and costly to negotiate and tax structuring advice should be sought at an early stage.
In June 2011, the Law Commission recommended revising the law of easements and introducing the concept of a “legal obligation”. This would make it possible for the benefit and burden of positive obligations to be enforced by and against subsequent owners. So far as flying freeholds are concerned, this would simplify and make more attractive a mutual agreement as it would avoid any concern that those obligations could be lost over time. It was announced in the Queen’s Speech in May 2016 that the Government will bring forward proposals to respond to the report; however, any progress appears painfully slow and no change is on the immediate horizon.
In the meantime, identifying flying freeholds early on in a transaction is key. This is not always easy or obvious and careful analysis of the plans of the building may be required. After that, there are various options to address the risks but they may take time to implement and a wary lender’s views should be considered early. With careful thought a flying freehold need not result in the death of the deal.