Unpacking the leasehold conundrum – Baguley

Unpacking the leasehold conundrum – Baguley

 

However, these are terms which are still misunderstood by many purchasers of these property types.

The main lack of understanding stems from ‘leasehold’ and its implications.  

Many consumers don’t realise that leasehold is simply a right to occupy a property for a period of time, albeit with some legal protection. And upon the lease expiring, ownership subsequently passes back to the freeholder. 

Let’s take a look at the pros and cons of leasehold. 

 

Pros 

Leasehold offers the ability to manage shared parts by way of a service charge.  

Thus, avoiding certain liabilities on a property where, for example, one flat has a roof and others do not. Essentially, it means that each property maintains an equitable share in the overall upkeep of the entire building and offers the ability to have a managing agent in place.  

 

Cons 

In many respects leasehold is a ticking time bomb. All leases diminish in length which means value also diminishes. Long leases pose little problems, but shorter ones do and a lack of understanding around this simple factor continues to raise concerns.  

Although this is not the only thing raising alarm bells for leaseholders. 

Shorter lease terms being issued mean that extensions to these leases are needed sooner.  

Ground rents are rising, and this have been happening gradually over a number of years. In addition, event fees are being introduced alongside excessive administrative charges which all combine to drive up costs. 

 

Leaseholder misunderstandings 

The latter is a worrying trend and an investigation by The Competition and Markets Authority (CMA) in 2020 found evidence of homeowners being taken advantage of.  

Findings included homeowners having to pay escalating ground rents.  

The CMA said these increases are often built into contracts, meaning people can often struggle to sell their homes and find themselves trapped. 

It also found people were being misled about the cost of converting their leasehold to freehold ownership.  

The CMA found evidence that, when buying their home, some people have been informed that the freehold would only cost a small sum, only for the price to increase by thousands of pounds with little to no warning. 

It was also discovered that buyers were not being told upfront that a property is leasehold and what that means.  

The CMA said some developers are failing to explain the differences between leasehold and freehold when asked, with some telling potential buyers there is no difference.  

It added that by the time people find out the realities of owning a leasehold, including the regular charges to be paid, they are often unable to pull out of the purchase, or face significant difficulties if they tried to do so. 

Another finding was that people were being charged excessive and disproportionate fees. 

The CMA found that fees are being charged for things like the routine maintenance of a building’s shared spaces or making home improvements.

It adds that if people want to challenge such charges, the process is often difficult and costly, meaning few people decide to go through with it.