Altering the lease of a property

[Bob_The_Builder]

We have a property management company that manages the block that we live in.

There are 4 flats in the block including the one I live in. 1 flat recently extended their lease for circa £40k, 2 others will renew soonish.

I own the freehold and the head lease.

I would like to change my flats lease so I don't pay any service charge/maintenance. The shortfall would then have to be covered by the head lease. If I put the head lease into the property management company then the existing profit would be reduced as it would have to cover the service charge. Thereby reducing the double taxation that I am currently experiencing.

Can anyone see a flaw in this?

[Notreallymeeither]

If any part of the structure is mortgaged you’ll need mortgage company consent. This is highly unusual so expect some resistance.

If you sell the flat you will likely want to undo it - as otherwise you will be carrying the can as the freeholder

If you rent out the flat then there potentially won’t be any way of offsetting these expenses for tax reasons.

I’m not sure why you are paying tax twice. The expense only needs to be paid once?

I suspect there will be legal restrictions on you doing it (on the basis it could be seen as potentially stuffing the 3 other flats) but you’d need some very specialist legal advice on this.

Edited by Notreallymeeither on Sunday 7th January 18:12

[z4RRSchris]

dont think its possible, and why would you be paying tax twice. ?

[Bob_The_Builder]

Double taxation as:
Tax on income that pays the service charge as a resident.
Tax on profit from property management company.

If I change the lease then:
Service charge is paid by the management company, therefore reducing the exposure of the company tax liability.

No mortgage so that's not an issue.

You are correct re needing to undo it if we sell.

Thanks all

[JQ]

I would have thought you'd need the consent of the other leaseholders as you are effectively increasing their potential liability - should the Freeholder go bust and there's no way of recovering the service charge via your lease then they'll be splitting the liability 3 ways instead of 4.

I think you need proper legal advice on this. What you propose does not sound like it should be legal, as unscrupulous people could use such a tactic to avoid large maintenance bills. But it might be possible, who knows, I suspect a solicitor would need to read all 4 leases to give proper insured advice.

[z4RRSchris]

also, profit for the property management company, there are only 4 flats how much profit you making?!

in such a highly regulated segment i would be ultra careful.

4 flats, should be self managed, i 100% wouldn’t want one of the 4 employing himself to manage and make a profit on it.

(i own a 1/2 and the freehold. we self manage, and a 1/9 and a 1/6, both self managed)