Five problems with a leasehold property
If you are looking to buy a new home, you may find many of the properties within your price range are leasehold. Recent stories of leaseholders exploited by unscrupulous landlords have dominated the press, even giving rise to the term ‘fleecehold.’ Should you be concerned?
Claire Wicks, Legal Executive with Parnalls Solicitors, looks at some of the problems with leases, proposals for reform, and offers some sound advice.
The underlying issue with leaseholds
With a freehold, you own your home outright. In contrast, a leasehold interest only gives you the right to your home for a certain number of years, called a term. You have a continuing, contractual relationship with a landlord to whom the property will revert at the end of the term. Generally, this means you have less control than if you owned a freehold property.
Most flats have traditionally been created as leaseholds. This makes sense because it allows reciprocal obligations to be enforced and for costs to be shared, but some unscrupulous landlords abuse the system. Moreover, some new houses may have been sold as leasehold simply to create an additional revenue stream for the developer which they sell on to investors.
Escalating ground rents
As a leaseholder, you will have to pay your landlord ground rent for the right to occupy their land. Historically, this has been a small, or purely nominal, amount. However, in recent years, the market has seen a rise in the average level of ground rents as they have become an investment vehicle rather than just a way of acknowledging a landlord’s interest.
Most leases include a provision to increase the ground rent at fixed intervals, often a stepped rise or in line with inflation. You need to beware as some provide for the amount to increase exponentially. In these cases, the initial sum may appear relatively small but over time they increase dramatically, reducing the value and marketability of your home.
Expensive service charges
A service charge is a way of ensuring that all leaseholders in a building contribute to the cost of its maintenance, and the provision of any shared facilities like car parks or communal gardens. The lease should also set out clearly which services the landlord must provide. Many leaseholders complain about the lack of control over the services they receive and the difficulty in challenging their cost and quality.
The cost of getting consents
A lease will restrict how you may use your property. It will also probably require you to apply for your landlord’s consent in certain circumstances, for example if you want to make structural alterations. In many cases, the landlord must not withhold consent unreasonably, and can only recover reasonable costs for dealing with your application. However, these costs could still be much higher than you expect, and the process of obtaining consent can be time consuming and stressful.
A lease is a wasting asset
Unlike a freehold, a lease is also a depreciating asset. Basically, the shorter the length of term left on your lease, the less it is worth. This may cause issues as the term reduces. Mortgage lenders will require a minimum length of term left on a lease before accepting it as security for a loan, and a shorter term is likely to make your property harder to sell.
You may not own as much as you think you do
A lease should set out precisely what you own. Unfortunately, the description of the extent of the property included in a lease is often complex and sometimes unclear. This can cause problems, particularly if there is an issue over who is liable for a structural repair, or if you want to extend your home. For example, in the recent case of Gorst v Knight, a landlord was able to prevent the leaseholders converting their cellar into living space because the lease did not include the necessary subsoil.
Good news, reform is on the horizon
The Law Commission is currently considering how to make it easier for leaseholders to extend their lease or to buy the freehold. At the same time, the government is looking at ways to make the leasehold system fairer. These include a ban on the unjustifiable use of leasehold for new houses and controls on the amount recoverable through ground rents.
The bad news is that any reforms may take years to become law, and their benefit to existing leaseholders may be limited. However, do not despair.
Your solicitor can help
There is no need to discount a property just because it is leasehold – just make sure that you seek expert legal advice.
Find a solicitor who is experienced in leasehold conveyancing and discuss your plans with them early on. They can check the lease provisions to ensure the ground rent and service charge are reasonable, and that there are no other onerous provisions which could catch you out later.
They will also make pre-contract enquiries, which can give you important information about how the building, and any common parts, are managed. These should also reveal whether there are any proposed major works planned, which would result in a higher service charge after your purchase.
If there are potential issues, your solicitor will explain these and may be able to offer some creative solutions. For example, if the term is short, they can advise you on any legal right to extend the lease, and how you can minimise risk by requiring your seller to initiate the process before you commit yourself to the purchase.
For further information about buying a leasehold property, or home buying in general, please contact Claire Wicks, Legal Executive in the Residential Property team on 01566 772375 or email firstname.lastname@example.org
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.