Navigating the Complexities of Bona Vacantia, Dissolved Freehold Companies, and leasehold issues

English land law, with its roots stretching back to the feudal system, presents a unique challenge to flat owners when dealing with a freehold that was owned by dissolved entity.

Understanding the intricacies of bona vacantia and dissolved freehold companies is crucial for a group of leaseholders looking to regularise the position with regards to ownership and maintenance of the freehold of their building. This is because the usual rights of collective enfranchisement will not be an option to the group.

This guide delves into the complexities of this area of law, emphasising the importance of early legal advice to navigate what can be one of the rarest and most challenging types of freehold purchase.

If you are affected by a bona vacantia freehold, get in touch to see how we can help.

What is escheat and bona vacantia

English land law operates on a system whereby a freeholder owns the land and buildings on it but ultimately derives their title from the Crown. In some cases, the land may revert to the Crown as the ultimate owner of all land in England and Wales.

This principle applies regardless of whether the freehold title is registered or unregistered. It's important to note that escheat is an entitlement of the Crown, not an obligation. There is a common theme in this area of law of the Crown Estate being entitled to things, such as money for the freehold (that it didn't buy) but without any liability for actually holding the freehold - welcome to the feudal land system.

However, escheat only applies to freehold properties. Furthermore, escheat does not apply to freehold property owned by joint tenants, where only one has been made bankrupt or dissolved, or to freehold property held subject to a trust. In these cases, the land is not solely vested in the bankrupt or dissolved entity.

A critical element in this process is the concept of bona vacantia, meaning "ownerless goods." When a company is dissolved, its assets, including freehold property, may pass to the Crown as bona vacantia, administered by the Treasury Solicitor. However, the Treasury Solicitor has the power to disclaim any property that vests in the Crown as bona vacantia. A disclaimed freehold property may then become subject to escheat.

The several routes to escheat

Several scenarios can trigger escheat, but here we focus on the two that are most likely to be encounter by owners of leasehold flats:

• By far the most common - disclaimer by the Treasury Solicitor under the Companies Act 2006:  The Treasury Solicitor handles bona vacantia when a company holding freehold property is dissolved. This is usually because dormant accounts or a confirmation statement have not been filed at Companies House.

  
  

  Regardless of the labels given, the leaseholder group will ultimately have to buy the freehold back for a sum of money.

  
  

• Disclaimer by a Trustee in Bankruptcy or Official Receiver:  A trustee in bankruptcy or an Official Receiver can disclaim property vested in a bankrupt individual who formerly owned a freehold property subject to leases. A disclaimer of freehold property terminates the bankrupt's interest, potentially leading to escheat. This could occur if a freeholder is declared bankrupt.

  
  

Leases continue in existence

It is crucial to understand that the process referred to above does not eliminate other interests in the property, such as leases of flats.

The Crown does not assume liabilities related to the freehold it has acquired in this way, which puts leaseholders in the alarming position of:

• No one is required to insure block of flats

• No one is required to respond to LPE1 forms if a flat is being sold

• No one is obliged maintaining external walls of the building and roof

• The common ways will fall into disrepair and be untidy, unless occupiers or flat owners step in of their own accord

This is because the Crown, in these situations, is not considered the "owner" in the traditional sense and doesn't bear typical owner responsibilities (though the flat owners still have to hand over money to the the Crown Estate for the privilege of this non-management!).

The Role of the Crown Estate and Duchies

In most cases, properties subject to escheat are handled by The Crown Estate. However, properties within the County of Cornwall and the County of Lancaster (which includes Lancashire and parts of Merseyside, Greater Manchester, Cheshire, and Cumbria) fall under the jurisdiction of the Duchies of Cornwall and Lancaster, respectively. In that case, different procedures will apply.

Practice and Procedure for Leaseholders

The Crown Estate's policy is generally to dispose of escheated property to an appropriate purchaser. In the context of a block of flats, the appropriate purchasers are usually the leaseholders and your leasehold solicitor will be expected to consult with every flat owner, even if they have informally not shown an interest in joining in. The Solicitors that act for the Crown Estate (Burges Salmon) will require evidence of this.

Bear in mind that throughout this process there is no obligation on the Crown Estate to sell the freehold or negotiate over the price.

If a disposal is possible, the interested party (or parties) must appoint a single firm of solicitors to represent them. This is where an experienced leasehold solicitor comes in.

Price, Legal, and Valuation Costs

Disposals are typically at market value. The Crown Estate has a statutory duty to obtain the best possible consideration and the leaseholders will need to cover the costs of the Crown's valuation before seeing the offer price.

A minimum consideration is required even when a readily ascertainable market value doesn't exist, such as if the freehold is subject to 999 year leases. The Crown Estate usually requires the purchaser to contribute to legal costs and reimburse valuation expenses on completion.

Benefits to resolving the issue

Once the freehold has been acquired, the group will be able to grant themselves 999 years leases, enter into a licence for alterations and put in place regular management of the freehold property, ensuring the long term future of the building and making the flats easier to sell.

Peppercorn Law's expertise

At Peppercorn Law, we have taken on a number of freehold purchases from dissolved management companies in Brighton, Eastbourne, Hastings and London. It is a very particular process and we suggest ensuring that your solicitor has dealt with the requirements of the Crown Estate before.