Nasty surprises with leasehold charges?

Nasty surprises with leasehold charges?

0:01 AM, 4th January 2024, About 2 months ago 29

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Hello, my daughter is about to buy her first property and, unfortunately, due to property prices and mortgage availability, she will have to go leasehold, which is something we have no experience of.

We have heard a lot of horror stories of leaseholders being charged many thousands for unexpected improvement works done on the building, for example, window or roof replacements.

How common are these occurrences, and is there anything we can do to mitigate the risk? Is it better to avoid leasehold altogether for this reason?

Thanks,

ES


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Stephen Thompson

10:41 AM, 4th January 2024, About 2 months ago

Hi,
As part of the purchase process you will need to purchase an LPE1 document which (among other things) will allow you sight of the last 3 years service charge accounts (pay particular attention to the reserves) and any anticipated section 20 works.
This will give you some idea of the financial health (or not) of the building.

Darren Peters

11:00 AM, 4th January 2024, About 2 months ago

Leasehold isn't terrible per-se but there are factors to be aware of:

1) When does the Lease expire?
It might be in 900+ years in which case there is no problem. If it is 50 years from now it's a big problem because.

a) You won't be able to get a mortgage
b) It will be expensive to renew
c) It will be almost impossible to sell on the open market.

If it's 100+ years from today (not from 1976 or some date in the past) it's okay. In fact above 81 years it's okay but you need to factor in getting the Lease extended. You have a right to a 90 year extension for a price. That extension will also remove the ground rent clause.

If you are looking to buy something with 80+ years consider asking the seller to put in the formal request for a Lease extension (called a section 42 notice) so that you don't have to wait 2 years before putting in notice.
https://www.lease-advice.org/
Has a lease extension cost estimator plus useful information

2) What are the terms of the ground rent?
If the ground rent is, "A peppercorn", you can take that to mean no ground rent, move on to the next question. If not, work out what it will cost over a long period. It might be something like £500 now doubling every 20 years which is done to account for inflation. Or it might be NASTY and say £500 today doubling every year which will soon become problematic and make the property difficult to sell in the future.

3) Improvement works and maintenance works.
The first and most obvious thing to look at is what is in the communal parts that might cost money.
For example if there is a lift, a swimming pool, a concierge, a roof terrace, a gym, expensive carpets... then that is going to cost a lot to maintain per year and each Leaseholder will have to pay a proportion. The Lease document should make clear the proportion but generally the bigger the property the greater the % of the cost will be due.

If it's a flat in a block of 6 with concrete stairs and nothing much communal to maintain then it will be down to the usual roof, cleaning the common areas, common lighting and fire alarm so not so onerous.

When purchasing your solicitor would ask the seller or Freeholder for the last 3 years' service charge costs. This will give you an idea of what these costs will be for you.

There shouldn't really be any 'improvements' save for upgrading things to latest standards Eg replacing single glazing with double glazing, better fire safety in common areas that sort of thing.

Ask your solicitor to check whether the Freeholder could do improvements to your detriment. For example if there is a block of 4 or 6 flats would the Freeholder be able to add another floor to the block because the roof space is held by the Freeholder?

How is the block managed?
Some blocks are self-managed by the Leaseholders themselves. In which case they will be less likely to be frivolous with money and there will be no management fee.
Others will have a management company in place which might be good or awful. Awful ones try to charge you £50 every time you send them a letter. Good ones mean the block will look nicely maintained.

Is there a sinking fund?
This is a fund paid into periodically in anticipation of big bills like a new roof. When a new roof is required it won't be a big financial shock. If there is no sinking fund and the roof needs replacing there will be a big bill.

Which leads to the final point in common with a Freehold, how nicely kept are the common parts, is the roof in good condition? Does anything look like it will need replacing soon? What are the neighbours like? You may need to be in agreement with the other Leaseholders to get anything done. If they work well together and have the same values as you it will be a dream if they can't agree on anything then nothing will get done unless a management co is in place and imposes the Freeholder's will.

Oh you mentioned windows. This will be explained by the Lease. The windows may be yours and your responsibility; they may be yours but their style may be controlled; the glass might be yours but the frames the Leaseholders.

I'm sure others will add more.

Shining Wit

11:23 AM, 4th January 2024, About 2 months ago

There is a reason why you have heard a lot of horror stories about leasehold.

Be very careful.

Better still: walk away and look for a freehold property - at least then, you'll have some say on how to address (and how much to pay) any issues you later find.

Good luck.

NewYorkie

11:24 AM, 4th January 2024, About 2 months ago

Reply to the comment left by Darren Peters at 04/01/2024 - 11:00
This has covered many of the potential leasehold traps, but anyone looking at buying leasehold should not believe it's going to be cheaper than renting. The reality is, if the ground rent goes above £1000 in, and £250 outside London, it effectively becomes an Assured Shorthold Tenancy, with the associated risk of eviction, regardless of whether you pay a mortgage. You do not own anything!

There is light at the end of this tunnel, with leasehold reform going through Parliament. This is expected to radically change the ground rent and lease extension rules and costs for the better. I recommend joining the #NationalLeaseholdCampaign, which is a grass roots organisation which has been driving the need for reform. There are plenty of well-informed members only too willing to share their thoughts and experiences, and offer advice.

Darren Peters

11:37 AM, 4th January 2024, About 2 months ago

Reply to the comment left by Shining Wit at 04/01/2024 - 11:23
In parts of London for example, most properties are Leasehold. The nasty traps of Leasehold are discoverable in advance.

Most of the problems imho have been where people buy a new build and get some kind of legal & financial deal from the developer. It's an easier way in but the supplied solicitor might not be as independent as they should be.

So, adding to my previous advice, always use your own solicitor, not one provided.

Freeholds can also come with nasties in the form of covenants.

In terms of not owning anything it's a question of degree. Providing you are paying, you are closer to 'ownership' with a Lease than an AST. Ie the Freeholder can't issue a S21 or S8. Conversely if you don't pay your council tax your chances of ending up in prison are the same whether you have a Freehold, Leasehold or AST.

Barbara Gwyer

13:23 PM, 4th January 2024, About 2 months ago

If purchasing a flat, being leasehold isn't necessary a bad thing. Amongst my London portfolio the two that give me the most headaches by far are a Victorian house divided into three where I have share of freehold and the one in a block of five where we have a right to manage company

Crossed_Swords

14:14 PM, 4th January 2024, About 2 months ago

Reply to the comment left by Stephen Thompson at 04/01/2024 - 10:41
The LPE1 is paid for by the seller not the buyer

Dylan Morris

14:35 PM, 4th January 2024, About 2 months ago

Reply to the comment left by Darren Peters at 04/01/2024 - 11:37Yes you’re right there’s really not much to worry about if the ground rent is unpaid and exceeds £250 p.a. and an AST comes into play. Firstly a Section 21 cannot be used until the end of the lease period (ie. the lease has expired) which could be tens or even hundreds of years away.
A Section 8 could be issued for rent arrears of 2 months or more, but the matter would need to go to Court and a judge would have to order forfeiture of the lease, the freehold cannot do this themselves. It is a mandatory ground but let’s face it if you haven’t paid the ground rent you likely haven’t paid the service charges and mortgage either.
If there is a mortgage on the property then good news, there must be a clause within the lease whereby the freeholder must inform the lender of the outstanding ground rent who will then pay it and debit the cost to the mortgage account.
In addition if the flat is rented out then there is no AST created as the tenant (ie. of the long lease) is not in occupation of the property which is a requirement under the Housing Act 1988.

NewYorkie

15:13 PM, 4th January 2024, About 2 months ago

Reply to the comment left by Dylan Morris at 04/01/2024 - 14:35
I would tend to agree with you about there not being much to worry about concerning ground rent. Unfortunately, most lenders don't share that view, and leaseholders find it difficult to remortgage and sell. Also, when the freeholder/managing agent starts harrassing the leaseholder for unpaid and/or disputed fees, the stress is horrendous.

I've been there. My freeholder told my lender I hadn't paid my ground rent when I had, and they paid the freeholder and added the amount to my mortgage. I had it refunded, but I suspect my lender didn't get the money back from the freeholder.

Kizzie

16:18 PM, 4th January 2024, About 2 months ago

The OP must instruct solicitors who are clearly experienced in leasehold conveyancing.
Your daughter is purchasing a lease to a flat or house , that is , the right to live on land owned by a freeholder who may or may not be a Management company which may also hold the role of landlord or lessor.
The lease (or underlease) is a legal contract between your daughter and the ‘landlord’ aka ‘lessor’ the party to the contract. Just as you have to comply with an employment contract so the lease contract binds the parties.
You must read the lease contract before proceeding with purchase of the lease to the property and if the lease states you must pay Ground rent then you must pay it otherwise the landlord can serve a section 146 forfeiture notice.
You are paying the solicitor to go through the lease line by line and explain what it means and answer the many questions in previous posts.
You should search internet for any legal action by or against the freeholder or management company.

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