Flying freeholds can take many forms. It might be a room in a house which sits over a shared passageway, or a row of terrace houses where the divide between houses is not a straight line. It can even be below ground – a cellar or basement which extends underneath a neighbouring property.
In each case, it is part of a building which either overhangs or underhangs a neighbouring property.
Lenders may worry if the structural integrity of the property they are lending against is reliant on another building's upkeep and maintenance. Take the property with a basement which extends under next door. If the neighbour fails to maintain their property, this may cause structural issues with the basement.
You may be thinking that this is relatively common, even on new developments – for example, balconies which overhang an adjoining land interest. So why are they cause for concern?
If there is no obligation for the neighbour to maintain their property adequately, and no right of access to fix issues yourself, then you will be in a tricky position if something goes wrong. Modern developments of flats will typically anticipate these issues and ensure there are cross rights and obligations. The issues usually relate to historic buildings, where the original development may not have anticipated splitting up buildings into separate units of ownership.
Lenders will often proceed with caution when the security involves a flying freehold. They may still accept the property as security, but subject to a number of qualifications. The UK Finance Lenders Handbook sets these out in detail, but broadly speaking there will need to be a series of enforceable covenants against the neighbour (as positive covenants to maintain will not otherwise run with the land), rights of access to make good issues, and the percentage of the building which is "flying" may be subject to a cap. Indemnity insurance is often available on reasonable terms, which lenders may insist on.
Flying freeholds may come to your attention in a number of situations. It may be you are considering a portfolio purchase (particularly if it includes old on-street housing stock), or designs for a new development (which may include for example an underground car park). It may impact on development borrowing, or the ability to put property into charge.
