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Are leaseholds unfair? What to look out for when buying a leasehold property

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The majority of UK flats are offered on a leasehold basis, as are an increasing number of new build houses. Recently, there has been growing concern about a range of practices in the leasehold market, including over spiralling ground rents for new build properties.

In July 2017 the UK government released a consultation paper called ‘Tackling Unfair Practices in the Leasehold Market’ to seek the views of members of the public on some of the key issues affecting leaseholders. While this may ultimately lead to changes in the law, for the moment there are some important things people looking at buying a leasehold property need to be aware of to avoid being caught out.

Ground rent

When you buy the lease on a property, you are technically a tenant of the freeholder and so are required to pay a ‘ground rent’, which is generally collected annually. Historically, ground rent was usually a nominal fee, often less than £100 per year, which many freeholders did not bother to collect.

However, in recent years many developers have begun selling new build properties on a leasehold basis with ground rents of hundreds of pounds per year. They also commonly include a clause allowing the ground rent to double every 10 years. This means the ground rent on new build leasehold property can quickly become unaffordable for many, as well as making selling on the leasehold difficult.

Service charges

Freeholders also have the right to charge leasehold tenants service charges for the upkeep of the building and communal areas. Commonly this will include fees for cleaning halls and stairways in blocks of flats, maintaining communal gardens, repairs to the exterior of the building, buildings insurance and similar. Many freeholders will also include an administration or management fee in their service charges.

The level of service charges and what they cover should be included in the terms of the lease. These charges can sometimes be quite high, making a significant difference to the affordability of a particular property, so should not be overlooked when considering buying a leasehold property.

The dangers of short leases

When you buy a leasehold property, you are normally buying the time left on the existing lease, rather than starting a new lease (unless the property is new build). You can generally extend the lease, but if there is 80 years or less remaining on your lease, extending it can become very expensive.

This is because once the time remaining hits 80 years or less, you will have to pay 50% of the property’s ‘marriage value’ to the freeholder to extend the lease, as well as the cost of the lease extension itself. Marriage value is the amount the leasehold’s value would increase due to the lease extension, which is often a significant amount.

The amount a leasehold property is worth is heavily influenced by how much time is left remaining on the lease. Once the time remaining falls to 80 years or less, the leasehold’s value will decrease rapidly. If there is 60 years or less remaining, you may struggle to get a mortgage on the property.

Knowing your rights

It is worth bearing in mind that you are not legally required to pay anything that isn’t specified in your lease, or a separate legal agreement between your landlord and yourself. There are also certain other key rights leaseholders have that can save you a lot of amount of money if used correctly.

The right to extend your lease – If you have lived in a leasehold property for at least 2 years, you will normally have the right to extend the lease. For a flat you can extend it by 90 years or more, for a house you can extend it by 50 years or more.

The Right to Manage – If you live in a leasehold flat you may be able to qualify for Right to Manage. This lets you and other leaseholders in your block of flats take over the building’s management, allowing you to set your own service charges.

The right of first refusal to buy the freehold – If your landlord decides to sell the freehold on your leasehold property, you will usually have the right of first refusal, meaning they must offer it to you before selling it on.

The right to collective enfranchisement – If you live in a block of flats, you and your fellow leasehold tenants may be able to force the freeholder to sell you the freehold. If the building and tenants qualify, then as long as at least 50% of the tenants in a block of flats participate, you can compel the landlord to sell you the freehold on the building at a fair market rate.

Get expert advice when buying leasehold property

Bird & Co Solicitors is a long-established law firm offering conveyancing services for properties across England and Wales from our 3 East Midlands offices. We have many years of experience helping clients to buy and sell leasehold property, so can ensure all of the relevant issues are accounted for and that you are fully informed of everything you need to know.

We are accredited by the Law Society’s Conveyancing Quality Scheme, reflecting the high quality of our conveyancing service. This means you can be confident that we offer fast, efficient and cost-effective conveyancing for leasehold property, keeping your interests protected.

To find out more about our conveyancing for leasehold property, call us today on 01476 591711 or use our contact page to find details of your nearest office.