These newbuilds add to the more than four million homes already held under leasehold tenure, which requires purchasers to pay an annual ground rent to the freeholder, as well as additional fees, for example, to sublet, alter, or extend the lease. Similarly, when the property is bought or sold, more fees will be levied. These additional charges can run into many thousands of pounds.
On top of this, leaseholders normally pay around £1,000 or more to a management company for maintaining the fabric of the building.
Mr O’Kelly added: “The law is heavily weighted in favour of the freeholder, many of whom reach aggressively for their lawyers at the drop of a hat.”
Lack of protection for this new wave of buyers is causing concern. Louie Burns, managing director of Leasehold Solutions, said: “Unfortunately, if you work in many of our big cities and can only afford a flat, you will have no option but to buy leasehold.”
If you find yourself saddled with a brute of a landlord, there are steps you can take. Under the Leasehold Reform Act 1993 you have the right to buy out the freeholder via a collective enfranchisement, which allows residents to club together and take over the freehold. Alternatively, you can apply for a “right to manage”.
Mr Burns said: “The appetite among flat owners for buying out their freehold is enormous, usually because they are unhappy with the services they are getting from the freeholder or his agent, or the charges they are paying.
“I’d always recommend buying your freehold, but it is not an easy process.”
Simon Masters, a solicitor with CG Naylor, agreed that the process could be fraught. He said: “It is most likely to be successful when you have a proactive group of flat owners.”
Problems often come to a head when major works are required. Landlords can build sizeable kickbacks into contracts. Buying the freehold, however, can give the residents autonomy over how and when the works should be carried out. They can control costs themselves, ensuring better value for money.
Furthermore, buying your lease can push up value of your property by 2pc to 4pc, according to Mr Burns. The new company can award itself extended leases of up to 999 years.
Owning the freehold should also make it easier to get a mortgage, as many lenders are cautious about leasehold properties, particularly those with short leases. Halifax and Coventry, for example, require 70 years left on the lease before they will consider an application, while Nationwide and Santander look for a minimum of 55 years, according to mortgage brokers at London & Country.
The flat owners will normally establish a company which must organise accounts, sort out insurance, arrange maintenance and hold an annual meeting. It must also take legal action against any fellow freeholders in breach of their agreements.
Mr Masters said: “Buying out the freehold doesn’t always end happily, particularly if you don’t get on with your neighbours.”
If a landlord is willing to sell, then you can negotiate and proceed on an agreed basis. More normally, the landlord is unwilling to part with his freehold, and will obstruct the process.
However, leaseholders have an automatic right to buy the freehold, under a process called collective enfranchisement. A specialist valuer can advise on price. The valuation will reflect ground rent, the length of leases, and any development potential.
“Buying out the freehold doesn’t always end happily, particularly if you don’t get on with your neighbours.”
Simon Masters, CG Naylor
If the price looks acceptable, then residents usually form a company that becomes the nominated purchaser, and the flat owners shareholders in the company. Smaller numbers, of fewer than four, can join together as joint purchasers. Allow anything between a further £4,000 and £6,000 in fees.
If some of your fellow leaseholders do not want to join the scheme, it can still go ahead, provided a majority buy in. Those who do not take part continue as tenants, but with a new landlord. However, those in favour must raise the additional sum to cover the non-participants’ share.
Similarly, the landlord will want all fee arrears settled on completion.
Mr Burns said: “Finding the money to fund the share of those not participating plus outstanding arrears is often a problem. Where residents have been unhappy with the service they commonly withhold annual fees, so arrears can build up to considerable sums.
‘We paid £100,000 for another 50 years’
Heather Noon, a human resources director, thought she had found her dream flat in Butlers’ Wharf, near Tower Bridge on the south bank of the Thames, but for one major drawback. The lease was only 75 years.
Ms Noon said: “We had lived in Shad Thames before and loved it. The flat was just what we were looking for. But the lease term was too short.”
The flat had been on the market for a number of months before the estate agent made some new information available. The potential purchaser would now be able to buy a share of the freehold and extend the lease.
Ms Noon said: “That changed everything, so we were keen to go ahead. The flat offered just the lifestyle we were looking for.”
But it came at a price. Buying her share of the freehold, and extending the lease from 75 to 125 years, added roughly £100,000 to the purchase price. But she, along with her husband, Chris, believed the investment was worthwhile.
Ms Noon added: “We also realised we were in a fortunate position, in that everything was being made relatively straightforward despite the extra legal hoops. We were being positively encouraged to buy a share in the freehold and extend the lease. We know how difficult it can be in other situations where flat owners are trying to buy the freehold or extend their leases.”
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