Summary and implications
It is important to consider the implications of a flying freehold early in a transaction. A flying freehold can, if not managed correctly, blight a property by inhibiting essential repair and maintenance and can ultimately prevent development. Many financial institutions will be reluctant to lend against a property with any element of a flying freehold, so it is important to take early steps to assess if the defect in title can be remedied.
What is a flying freehold?
In England and Wales a freehold is normally divided vertically so two freeholds do not overlap. A flying freehold occurs where one freehold overhangs or projects into another. Flying freeholds are usually found in old properties and commonly exist above archways allowing access between properties or in cellars which encroach under another property. However, there are other circumstances where flying freeholds may exist – a property built on a steep hill may sit on top of another property for support, a balcony could protrude over someone else’s land or a multi-story building may have been divided but the configuration of the rooms prevents a completely vertical division.
What are the practical problems of a flying freehold?
Both parts of a flying freehold property should have the right to be supported or protected by the other, coupled with a right to enter the other property to carry out repairs and maintenance. Flying freeholds rarely benefit from adequate rights either because the original conveyances did not contain such rights, or because the obligations have been lost over time.
Obligations often become lost as, whilst the benefit or burden of a restrictive covenant can pass to future owners upon the sale of land to which the covenant relates, the burden of a positive covenant cannot. In order to perpetuate a positive obligation (for example, a positive obligation to keep a property in repair for the benefit of an adjoining flying freeholder) each purchaser needs to enter into a deed of covenant to observe and perform the positive obligation. This chain often breaks down over time and, in the case of a flying freehold property, can leave the property with no rights of support, access or repair.
Without adequate rights, a conveyancer will find it difficult to certify that the property has good and marketable title. This is likely to concern lenders, who may choose not to lend against the property or will only do so on the basis that the flying freehold does not exceed a pre-determined percentage of the floor area of the building (usually 15 per cent).
Practical example
There is a passageway at ground floor level between two properties which is owned by Property A and the first floor of Property B extends over the passageway.
Property A has not kept the passageway in repair and due to subsidence Property B needs to undertake repairs.
Property B does not have a right to erect scaffolding on Property A or deal with the repairs without the owner of Property A’s consent. The owner of Property A is requesting a fee of £10,000 to grant access to Property A and for consent to the repair.
The structure of Property B, the integrity of the arch over the passageway and the safety of the people who use the passageway are all threatened.
What steps can be taken to address the problem of a flying freehold?
- Indemnity insurance policy
It is often considered that the easiest course of action is to obtain defective title indemnity insurance. A policy will provide cover against any loss in value following damage due to the lack of maintenance or repair of an adjoining property. It will also cover any costs incurred by the owner of the flying freehold in prosecuting legal proceedings against the adjoining property owner.
However, the policy itself does not remedy the defects in the title and the owner must have exhausted all reasonable steps to arrange or obtain a contribution towards the maintenance or repair of the property with the owner of adjoining property before making a successful claim.
Developer purchasers also need to be aware that an insurance policy will often contain exclusions preventing any structural alterations or change of use, so insurance will not be a viable option if there is an intention to redevelop the property.
- Deed of mutual easements and covenants
This option can only be pursued with the co-operation of the adjoining landowner, so it is important to establish at an early stage who the other freeholder is and if it is willing to co-operate.
Both property owners enter into a deed of mutual easements and covenants, granting the necessary rights of support and protection, access for repair and maintenance for each other’s properties and imposing obligations on both parties to keep their own property in repair and insured and to reinstate if damaged.
It is key to ensure that any positive obligations contained in the deed are binding on successors in title by requiring that each subsequent purchaser of either property enters into a deed of covenant to observe and perform the obligations contained in the deed. This obligation can be protected by a restriction on the registered titles of both properties to ensure that no sales can be registered without the consent of the other freeholder or freeholder’s solicitor. Whilst, in theory, this appears to be a straightforward solution to ensure the positive obligations contained in the deed of mutual easements and covenants are perpetuated, in practice, it may not always be easy to procure the letter of consent from the other freeholder or their solicitor.
- Conversion to leasehold structure
This revised ownership structure could take some time to put in place and therefore needs to be agreed upon in good time for any potential sale or purchase to be achieved within the agreed time frames.
Under this solution, both freeholds are transferred to one of the existing owners. A 999 year lease is then granted to the other owner in respect of their property. The long lease contains the necessary rights and covenants and is automatically binding on any purchaser of the leasehold interest, without the need for a chain of deeds of covenant or restrictions on title.
- Rely on the Access to Neighbouring Land Act 1992 (the Act)
The Act can be a useful tool if all else fails but, similar to the insurance route, is a far cry from rectifying the problem. It is a long and expensive process and has no guarantee of success.
The Act allows a court to grant temporary rights of access to another person’s land for the purpose of carrying out basic preservation works. An order will only be granted for work which is required to protect, repair or maintain, but not to improve the property and an order will be refused if the other owner of property would suffer interference with or disturbance to their land to such a degree that it would be unreasonable to make the order.
Conclusion
A conversion to a leasehold structure is currently the most effective way to resolve the issues associated with a flying freehold property. Not only does it remedy the defects in the title, it does not require reliance on a chain of covenants to enforce any positive obligations. However, in June 2011 the Law Commission suggested the introduction of a new legal concept: that of a land obligation. A land obligation could be either positive or negative in nature, would be capable of registration and would automatically bind successors in title. If the Law Commission’s proposals for reform are implemented, the positive obligations contained in a deed of mutual easements and covenants would no longer need to be perpetuated on every sale. This would certainly open up the deed of mutual easements and covenants route as a more preferable solution than it currently is to what can, often, be a tricky little title problem.
