Leasehold reform on the cards…

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Long-leasehold:

The government has been saying for some time now that Britain’s
ancient leasehold laws are overdue for reform.

The initiative stems from recent abuses of the leasehold system,
where building companies have been seen to exploit unsuspecting buyers of new-build
properties, often first-time buyers who are unaware of the implications of
buying a leasehold interest, as opposed to a freehold interest.

The balance of power in the leasehold system, one which is
virtually unique to Britain around the world, is deemed to fall too heavily in
favour of the freeholder, that’s according to a new report in which MPs are
calling for change.

The report produced by MPs sitting on the housing, communities
and local government committee says that the leasehold housing system is
“flawed� and open to abuse, with homeowners left at risk of “exploitation�
because of onerous ground rents, high service charges and unreasonable costs to
extend leases.

The government now has two months in which to respond to the
committee’s findings.

Property Ownership
Types

Basically, in English law, there are two main types of
ownership: freehold, which means you own it the property and the land it stands
on outright, and leasehold, which gives the leaseholder a right to occupy for a
given and agreed period of time, to buy and sell the property, but they don’t
own the land it’s built on.

Lease holders are in effect the tenants of the freeholder
and they will pay an annual ground rent and service charges for maintenance,
plus special charges for such things as alterations and lettings. These charges
are often where the unfairness and disputes arise.

Currently, there are said to be around six million
properties in England and Wales under leasehold, mostly flats and apartments in
blocks, and most commonly in the capital – London. However, recently it has
become an increasingly common arrangement for new build houses to be sold by
development companies giving only a leasehold title to the new “owners�.

The Parliamentary committee found during their inquiry that
many of these leaseholders were unaware of their legal position – the differences
between freehold and leasehold – when they purchased “in particular the
additional costs and obligations that come with a leasehold property�.

There are some critical issues when dealing with leasehold,
which are important for any buyer to understand: the length of the lease, the
amount of the ground rent and service charges and how these can multiply over
time, the cost of renewal of the lease, the terms of the lease and its restrictions
and the costs involved to renew or extend the lease period.

The legalities are highly technical and anyone considering
taking on a lease should seek specialist (leasehold) professional advice.

Costs and Charges

Maintenance can be problematic and expensive when dealing
with high rise blocks, so to even out the costs for leaseholder long-term, property
freeholders and their managing agents often use sinking funds – this is a reserve
a pot of money accumulated over time to pay for unexpected repairs and major
works, for example a new roof or lift repair. This issue has been particularly highlighted
with the cladding issue after Grenfell.

Leaseholders are often subject to many restrictions set in
the leasehold agreement which means that permission is required from the
freeholder to do many things, often with a hefty charge involved.

Sometimes a formula is included in the lease for increases
in annual ground rent charges which can lead to them spiralling to astronomical
levels. This is an issue the MPs intend to address and have suggested legislation
to limit charges to 0.1% of the present value of a property, up to a maximum of
£250 per year.

Leasehold Reform Inquiry

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