Five reasons you should never buy leasehold
If you're buying a flat, it pays to make sure you know what you're getting into. Buying a leasehold property can cost you thousands in extra charges over the years so read this before signing your life away.
I learnt the hard way about the perils of leasehold property.
I bought my first flat 12 years ago when I was young and naïve. Little did I know I was unwittingly entering the murky unregulated world of freeholders and managing agents.
For the uninitiated, leasehold ownership of a property basically means a long tenancy and the right to own, occupy and use it for a long period.
The lease is the contract between the flat owner and landlord or freeholder who owns the land and building. Technically, if you buy a leasehold flat, you become a leaseholder rather than an “owner”.
Leaseholders normally pay a ground rent to the landlord and service charges for the upkeep of the communal parts of the building. Normally the freeholder will employ a managing agent to do this work for them.
In theory, this all sounds fine. But there are numerous ways leasehold is a massive rip-off. Here are five:
1. Inflated service charges
Service charges are levied by the freeholder for the upkeep of the communal parts of the building such as the garden, staircase, roof and lift.
The freeholder/managing agent decides what work should be done and who by - it might be another company within the same group, their friend, or anyone else they fancy. But it’s the leaseholders or flat owners who have to pay for it.
The managing agent will also charge a percentage fee on top so they have no interest in keeping costs down. Some even take kickbacks from insurance brokers for buying overpriced buildings insurance and passing the cost back to the leaseholders.
It’s a completely unregulated sector; anyone can be a freeholder or managing agent and charge what they like.
2. Leasehold valuation tribunals
Under the Commonhold and Leasehold Reform Act 2002, leaseholders can take a freeholder or managing agent to a Leasehold Valuation Tribunal to challenge unfair service charges or other fees. The freeholder will have to prove their fees are reasonable and both sides will need legal representation.
Sounds fair enough? Or does it?
Some leases contain clauses that mean if you take your freeholder or managing agent to a tribunal and you win, the freeholder is allowed to add their legal costs on to future service charges bills.
So even if you win, you lose, as you’ll be paying your own legal costs and the freeholder’s too.
3. Poor service
As well as suffering unreasonably high service charges, many leaseholders receive a poor service in return for their money.
Obviously calling the managing agent and asking for an improved service should be your first move. However, sometimes they still don’t fix things adequately or quickly enough.
Over 12 years of owning a leasehold flat I experienced some pretty shoddy service from the managing agents. The lease stated that certain work had to be done every seven years such as the roof fixed and internal areas redecorated. But the work wasn’t always done on time or particularly well.
4. Breach of lease
As a group of leaseholders we considered taking the managing agents to a tribunal with a case of “historic neglect” which means their poor upkeep of the building was breaking the terms of the lease and, when the work was finally contracted out, a bigger bill for us.
However, at a meeting with the managing agents it became clear that if we took them to a tribunal for breaching the lease, they’d find a reason to come after us too.
The lease puts certain obligations on leaseholders such as redecorating regularly, stopping the windows from rotting and having carpets not wooden floors (terms may vary from lease to lease but these terms were in my lease). The agents let us know in no uncertain terms that if took them to tribunal they’d lay claims against us too.
5. Sale fees
As I said I’ve just sold my leasehold flat and couldn’t wait to be free of the managing agents. But, inevitably, there was a price to pay during the sale process.
Firstly, I had to pay £264 for the agent to answer questions from my buyer’s solicitor. They were all pretty straightforward and I reckon it took an hour at most. Next, I had to pay £198 to transfer the lease to the buyer and £198 to transfer a deed of covenant (alteration to the lease) to the buyer, plus a random £60 admin fee for what amounted to a signature on a side-and-half of A4.
What if I didn’t pay up? Well then they didn’t sign the necessary paperwork and I couldn’t sell my flat. So they had me over a barrel. In total I paid the managing agent/freeholder more than I paid my solicitor to sell the flat and the solicitor did 10 times more work than they did.