MILLIONS of homeowners will get greater control of their properties under changes to the leasehold system.
But until the plans become law – which could take months – buyers and current leaseholders should remain on their guard.
Skim over the small print and you could face escalating costs that turn your dream home into a nightmare money pit.
Samantha Partington explains how to avoid getting snared by leasehold traps and fight back against unfair fees.
HOW DOES LEASEHOLD WORK?
MOST flats in England and Wales are sold as leasehold, as well as a minority of houses.
It gives owners the right to live there for the number of years laid out in the lease.
“You’re really buying a long-term rental in a communal building,” says Sebastian O’Kelly, of charity Leasehold Knowledge Partnership.
The building and land it sits on belong to the freeholder, you pay for the upkeep of external walls, roof and shared spaces.
BEFORE YOU BUY
BUYERS should beware of traps lurking in the paperwork.
“Lots of flats in high-rise buildings are unsellable since Grenfell as leaseholders face huge bills to pay for fire-safety measures,” says O’Kelly.
“In other cases, leaseholders can’t sell or get a new mortgage because they are locked into escalating ground rent terms.”
This rent must be paid to the freeholder every year and in the worst cases it can double or treble every five or so years.
Before making an offer, insist on seeing the lease so you can spot clauses like this.
Watch out for high service charges for cleaning and repairs.
Take note of any clauses banning you from keeping pets, letting the property out or restricting home improvements.
Check the term remaining.
If it’s 80 years or fewer the flat may well be unmortgageable.
And ask if any major building work is planned.
EXTENDING THE LEASE
YOU have the right to extend a lease once you have owned the property for two years.
But O’Kelly says that most leaseholders should not be doing so right now, they should await the new rules.
By holding off you’re likely to save thousands and get a 990-year lease instead of 90 years, he says.
“Watch out for freeholders’ making hurried offers to extend your lease for a lump sum, it could be a last-ditch bid to earn cash before the reforms kill off their income stream. It might look like a good deal but you could be tying yourself into aggressive clauses that will cost much more in the long term.”
Only consider an extension now if you urgently need to sell or remortgage a property with a short lease, he says.
In that case, make sure it’s a “statutory” or “formal” extension.
This means your ground rent will be reduced to nothing, or what’s known as a “peppercorn rent” in the legal jargon.
Speak to the Leasehold Advisory Service online at lease-advice.org or call them on 020 7832 2500 to find out more about how to apply for a lease extension through the formal route.
Leasehold Knowledge Partnership also has lots more advice at leaseholdknowledge.com.
HOW TO TAKE CONTROL
AS a leaseholder you should insist on an itemised bill for service charges and challenge any costs that don’t seem right.
Homeowners in a block of flats may have the right to force the freeholder to sell them the freehold.
This is called collective enfranchisement and means each flat owner ends up with a share of freehold.
You are still a leaseholder bound by the lease but you have control over how your building is managed and maintained.
The agreement relies on you and your neighbours getting along.
“In a happy marriage of leaseholders, the incentives for buying a share of the freehold are compelling,” says Katherine Simpson, property partner at law firm Edwin Coe.
But disputes can arise when owners can’t agree on key decisions, as Linzi Bowen found.
The price of buying the freehold depends on how long is left on each of the leases as well as the value of your flats.
O’Kelly says it’s likely to cost far less under the new rules which could change the way each flat’s share is valued, so you’re best off waiting.
And until reforms come in, you have to pay the freeholder’s legal costs as well as your own.
Under current rules, buying a share of freehold typically costs roughly the same amount or slightly more than extending a lease.
For a flat worth £200,000 with 85 years left on the lease and ground rent of £100 a year, you might expect to pay around £5,000 plus legal fees of £2,500, according to estimates from Homehold, a lease extension firm.
However, if it’s in a block with lots of flats, it has a short lease or the ground rent is set to rapidly increase, your costs could be far higher.
A cheaper option is to make a Right To Manage claim.
Here you take over running of the building but don’t own the freehold.
This can cost upwards of £300 per flat.
At least half the owners in the building must be happy to buy the freehold or make a Right To Manage claim.
HELP IS ON ITS WAY
IF Michael Gove’s proposed reforms are voted in by Parliament, it will become cheaper and easier to buy your freehold, extend the lease or take up the Right To Manage.
You’ll no longer need to have owned a flat for two years to do so.
The standard length of a lease will increase from 90 years to 990 years.
Freeholders and managing agents will need to be clear about charges and their bills must follow a set format.
Leaseholders will no longer pay freeholders’ costs when buying the freehold or challenging unfair costs.
And they will get access to schemes to help win money back in disputes.
A consultation to cap ground rents for existing leaseholders closes on December 21.
‘I feel so trapped and just want to sell flat – I don’t care what I get’
HAIRDRESSER Linzi Bowen is desperate to escape the leasehold trap after inheriting her late parents’ flat six months ago.
Her mum and dad, Wendy and John, didn’t spot the red flags when they bought the two-bed flat in Trowbridge, Wilts, in 2015.
Since then, service charges on the property have jumped by 560 per cent from £600 to £3,960 a year.
Yet despite these soaring maintenance costs, the property has become increasingly dilapidated, making it even harder to sell.
Repairs have been neglected due to a stalemate with the owners of the other flats in the building who each own a share of the freehold.
The others are landlords who don’t live there.
After John’s death in 2017 and anxious about the escalating costs, Linzi and her mum started trying to find a buyer.
But when a sale fell through due to the flat’s high costs and disrepair, Linzi saw her mother’s health “nosedive”.
Wendy died from a stroke in May at the age of 79.
Linzi, 50, says: “Everything my parents worked for is tied up in this flat but I just want to sell it, I don’t care how much I get for it.
“It destroyed my family and now I feel as trapped as they were.”