Why are leaseholds in the news?
In the past few months there has been growing concern about the way house-builders and land owners are profiting from ground rents from leasehold properties.
Some leaseholders of new and relatively new properties have found themselves paying ground rents which can double every decade. For example, if the ground rent is now £250 a year, then by 2060 it could be £8,000 a year.
Fees can also be levied if the homeowner wishes to remortgage.
Unfortunately for some leasehold homeowners, as well as increasing rents, their homes are becoming difficult to sell as people don’t want to buy a house that has an increasingly large fee for ground rent every 10 years.
The good news for some is that the government has proposed a ban on selling leaseholds for new-build properties and to lower ground rents on new properties, as it is deemed exploitative.
Sajid Javid, communities secretary, suggested that ground rent was being used as an “unjustifiable way to print money”.
However, this will not help those already trapped by ground rents that have been sold off by developers to wealthy land owners ready to up the rent. The problem is that a leasehold contains a rent that doubles every ten years – a return on investment of around 7% a year – which is also a guaranteed and legally-enforceable contract.
Who is affected?
According to the Department for Communities and Local Government figures, around 21% of the private housing across the UK is leasehold, with 30% (100,000) of the properties houses rather than flats.
And while Britain has sold leaseholds for centuries, the past few years has seen a sharp rise in ground rents.
Historically, homes have been sold as freeholds, in which you own both the property and the land it sits on. However, when a house is sold as leasehold, then you are effectively renting the house for long time (sometimes up to 999 years), with the land still owned by the freeholder or landowner.
This means as a leaseholder, you must pay ground rent to the freeholder, plus ask permission to make any changes to the house or that will affect the house.
How do I find out if I’m a leaseholder?
The best way to check if a property or a property you wish to buy is a leasehold is to go on the land registry website and enter the post code. Most property is registered.
Alternatively, the solicitor who acted on your behalf when you bought the property should be able to help, or ask your mortgage lender.
Can I change the terms of my lease?
Yes, you can negotiate certain changes to the lease but both parties must agree to the terms.
If you can’t agree then you may be able to take them to First-Tier Tribunal (Property Chamber - Residential Property), which may or may not find in your favour.
It is independent of government and will hear both sides of the argument before making its decision.
You can also get free advice from the Leasehold Advisory Service (LAS) on varying the lease and other issues like service charges.
Alternatively you could buy the freehold, but as mentioned above, this can prove expensive because some landlords just wouldn’t want to sell the lease, as it could be worth a lot of money in the future.
I’m not happy with the advice I got from my conveyancing solicitor – what can I do?
Once the deeds have been signed, you have bought the leasehold and your conveyancing solicitor’s job is effectively over.
However, if you do think that the leasehold was represented badly by your solicitor, or indeed if they misled you in any way, then first of all you’ll need to get in touch with them.
Solicitors and conveyancers have a complaints procedure, which will outline what you need to do. You should be sent through to a senior manager, as the case needs to be handled correctly and professionally.
Be aware that each firm will do everything in their power to stop the case going to the Legal Ombudsman, so mentioning that you will go to the Ombudsman should speed things up.
But aware that more than half of cases need to be taken to the Ombudsman, which is an impartial and independent scheme set up to resolve legal disputes. So if they find that the conveyancer or solicitor is at fault, then they have the power to put it right, if you can prove you need compensation.
What happens if I want to sell?
If you are a leaseholder then you will have to ensure all the ground rent is settled and you have paid all service charges for the property – as agents and landlords will not give permission to sell should either be in arrears.
You will also need to pay a fee to the freeholder or the management company for registering the deed of covenant or granting consent and assignment of the lease. This is all done 28 days before the point of sale.
But as mentioned earlier, it may prove difficult to sell the property due to new buyers not wanting to agree to an expensive leasehold, so you may be in for a long wait.
I’m buying a house – what should I look out for?
Buying a house is one of the biggest decisions you will ever make, and it is almost definitely the most expensive thing you’ll ever buy. If you can only afford a leasehold, then ask yourself the following before you sign any documents.
- How many years are left on the lease?
- Can you afford the service charges and related costs?
- Will the length of the lease affect getting a mortgage and/or the property resale value?
If the lease is less than 70 years, then you may struggle to get a lender to grant a mortgage. The lease will normally need to stretch another 25 to 30 years beyond your mortgage term. So this means that if you mortgage term is 25 years, then the lease needs to have at least 55 years before it expires.
As you won’t own the land the property is on, then you will have to pay for services rendered on the land, such as communal gardening costs, electricity for communal areas and maintenance of exterior or garden walls.
Make sure you can afford these costs on top of the ground rent, as it could become expensive. Plus, you might have to pay to get permission to make any changes to the outside of the property.
As mentioned previously, it can be difficult to sell on your leasehold property as both lenders and conveyance solicitors will often warn new buyers against getting a leasehold due to growing lease fees and unforeseeable liabilities.