What is the problem with leaseholds?

To answer that you first need to know: What is the difference between freehold and leasehold?   

  • IF YOU OWN THE FREEHOLD, YOU OWN THE PROPERTY INDEFINITELY.  
  • IF YOU OWN THE LEASEHOLD THEN EVENTUALLY THE LANDLORD WILL GET THE PROPERTY BACK.  

The problems flow really from the fact that the landlord is also able to charge you fees for things, such as consent to the building of an extension. There is also a ground rent payable, that can sometimes rise rapidly. In English Law, it is difficult to make a “positive obligation” (which means something which makes you spend money) be enforceable between different freehold titles. The repair of a block of flats is a good example of this. If there were two flats, one above the other, and a repair was required from the foundations to the roof, the cooperation of both flat owners is required to ensure that the repair is carried out correctly. If both titles were freehold, one flat owner cannot force the other to do the works required to the other flat. This can leave one flat owner suffering damage to their flat with only a complicated procedure through the law relating to a nuisance as a remedy. However, if the landlord owns the freehold and each flat owner has a lease, it is a simple procedure for the landlord to have the repair carried out and the cost of that split between the flat owners. So leasehold does have its uses. However, this procedure can be abused by the freeholder and the question you need to ask is why is it a leasehold title if you own a house? See the problems below … 

Common problems are:  

THE GROUND RENT.  

Traditionally this was a peppercorn (yes the sort that you grind!) but in recent years they have risen to £200 with an increase built-in. These increases over time can rise to a level that is so high that the property becomes unmortgageable (and therefore only saleable at a discount). You need to have a lawyer check the terms carefully before you buy one of these leases. 

ADMINISTRATION FEES.  

The landlord can charge high administration fees for every registration of a new buyer or foe an application for permission for an extension etc. 

SERVICE CHARGE.  

These are costs that the landlord incurs in managing the freeholds that are recoverable from the tenants. The typical items are the insurance of the building. There are statutory controls over the amounts that can be claimed, but these are sometimes pushed to the limit. 

 THE COST OF BUYING THE FREEHOLD. 

If you have lived in a property for at least two years you have a right to buy the freehold of your leasehold property. There is a statutory procedure for calculating how much that price should be. Many people are ignorant of this procedure and the freeholders take advantage of this by asking initially for a price much higher than this figure. As this offer often follows a “valuation” (paid for by the tenant) then the tenant may accept that price without taking legal advice on the price. Where we are instructed, we typically save people (after payment of all legal and surveyors costs) around £3,000 to £5,000 on that initial price. 

THERE IS ONLY 50 YEARS OR SO LEFT ON THE LEASE.  

Then the property becomes unmortgage able and the owners can find themselves in a catch 22 position where they cannot afford to buy the freehold, but they cannot sell the property without doing so. We can help with this as well. There is a similar procedure, and problems, with extending a lease. We would only recommend that a lease is extended on a flat, not on a house.  

TOOMEY LEGAL ARE SPECIALISTS IN DEALING WITH LEASEHOLDS AND EITHER BUYING THE FREEHOLD OR AGREEING A LEASE EXTENSION.