On top of ground rent, which may or may not be payable depending on the lease, leaseholders must pay annual service charges to the freeholder. These cover costs such as insurance, maintenance for lifts and cleaning of communal areas and – in most cases – the managing agent's fee.
Incredibly however, managing agents are not regulated by statute and there is nothing to prevent them from hiking up service charges at any time. The law requires that "costs incurred should be reasonable, for work or service of a reasonable standard", but with no definition of "reasonable", leaseholders are all too often left with little or nothing to show for their cash.
"We hear of lots of disputes about service charges, especially when there are one-off extras involved such as paying for a new roof for the building," says Mark McLaren, a property expert at the consumer watchdog Which? "Just type 'leasehold problems' into Google and you will see how common these issues are."
But leaseholders do have rights. Nicholas Kissen is an adviser at The Leasehold Advisory Service (Lease), which offers free telephone advice to disgruntled or just confused leaseholders. "If your managing agents fall outside your definition of reasonable, you can take them to the Leasehold Valuation Tribunal," he says. "If you win, the tribunal will appoint a new agent, often even one that you suggest."
Some further security for leaseholders lies with trade body, The Association of Residential Managing Agents (ARMA), which sets down minimum standards for its members and provides leaseholders with legal recourse if their managing agent is not playing ball. Membership is voluntary, though ARMA represents 250 managing agents who are collectively responsible for between 80 and 85 per cent of all leasehold blocks in England and Wales. You can check if your managing agent is a member at arma.org.uk
Even if your managing agent is reasonable, there are avenues that entitle leaseholders to take control of their own building, says ARMA's chief executive, David Hewett.
"Enfranchisement, for example, is when enough leaseholders, who satisfy certain criteria, get together and enforce the purchase of the freehold. Alternatively, Right to Manage – introduced in 2003 – allows leaseholders to change the management of the property at any time, whether it is deficient or not – aside from cases where the landlord is a local authority."
Both routes, however, are complex and drawn out. Before you can even begin proceedings, you will need 50 per cent of owners in the block to agree – two-thirds of whom must be categorised as long leaseholders, which means 21 years or more remaining.
Prevention is always better than cure however, which is why it's crucial to understand the lease before signing on the dotted line. "Most buyers don't understand what they are getting into," says Mr Hewett. "It's incredible how many people budget for the mortgage and only realise about service and other charges on moving in. This often marks the start of the acrimony with the managing agent."
Hewett, in part, blames property lawyers who "don't take enough time to explain the lease." But Paul Marsh, a past president of The Law Society, claims getting clients to show interest in the lease is easier said than done. "For the average person, a lease is complicated. Consumers simply don't want an hour's lecture – they want to move in, get their bike on the balcony and their flatscreen TV on the wall. But this is a problem as when you buy a leasehold property, your home is not your castle – it's someone else's."
There are two points that buyers really should take time to understand though. The first is the length of the lease and the prospect of having to extend it up to the ideal 99 years (or 125 years if the freeholder is a registered social landlord). "Once a lease dips below 80 years, it becomes a lot more expensive to extend," says Mr Kissen, "but you need to be the owner of the property for at least two years before you can insist that the freeholder extends the lease." Alarm bells should thus start to ring as soon as the lease has just 82 years remaining.
The cost of extending a lease will depend on the type of property and the terms and conditions of the lease – but there are some statutory guidelines. To get a rough idea of costs, use the calculator on the Lease home page at lease-advice.org
The other point to look for in the lease is "restricted covenants" which dictate what leaseholders can and can't do, warns Mr McLaren. "We heard from one man who discovered he couldn't keep his bicycle in the hall, which he found frustrating as he had nowhere else to put it." Restricted covenants could also state that you are not allowed pets or must carpet floors if you live upstairs.
Leasehold transparency, however, is improving. For example, basic leasehold information now forms part of a home information pack (Hip). "A lot of people are critical of Hips, but when it comes to leasehold information they are useful in at least prompting buyers to ask questions," says Mr McLaren.
Earlier this year, the Royal Institution of Chartered Surveyors also advised the Government to review and improve regulation relating to service charges in leasehold properties www.arma.org.uk
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