Britain's leaseholders have been running a tricky gauntlet for years, trapped in an often murky legal no-man's land between tenant and outright owner. Now the recently revived right-to-buy scheme could mean an army of tenants becoming leaseholders despite being wholly unaware of the responsibilities and potential pitfalls involved.
Pressure is mounting for regulation to be introduced to do away with questionable actions that can leave a leaseholder significantly out of pocket, but for now buyers embarking on a leasehold house purchase must ensure they know exactly what they are getting themselves into.
With the Government reintroducing right-to-buy to help council tenants purchase their homes, it's even more important that anyone looking to buy on a leasehold basis is absolutely clear about what this means. First-time buyers need to be particularly vigilant as many end up buying new-build apartments which are invariably sold under a leasehold arrangement. This is particularly true in cities like London where leasehold flats account for 23 per cent of property ownership, against just 5.8 per cent nationally.
Former housing minister Grant Shapps maintained that reforms for leaseholds should be driven by action, not regulation, but with Mark Prisk now at the helm things may change. Meanwhile, for the owners of Britain's 2.5 million leasehold properties, the balance of power between freeholders and leaseholders is still dangerously out of kilter.
"What many first-time buyers don't realise is that, if they are purchasing a leasehold flat, they are buying a long lease with obligations along with their bricks and mortar," says Claire Banwell Spencer, a solicitor at OM Property Management.
Leases often come with a list of dos and don'ts. While a freehold owner can do as they wish with their home (short of local planning rules), leaseholders have far more restrictions. For example, they typically have to gain permission from the landlord to make significant improvements, or bring pets into the home. There are often trivial rules regarding things like satellite dishes and the storage of bikes or prams in communal areas. In most cases the rules are for the greater good, but when it comes to the service charge serious conflicts can and do arise.
On top of ground rent, a service charge is payable to the freeholder to cover the cost of maintaining the building. The big issue here is that the freeholder has complete control over the management of the property and is free to charge well over the odds. In a recent report, the think tank CentreForum called for an independent leasehold management watchdog to protect leaseholders, warning that problems with managing agents are growing, with the number of disputes over inflated service charges rising by an astounding 400 per cent in 10 years.
As freeholders have little incentive to provide value for money, it is hardly surprising disputes arise, but to make matters worse some freeholders actually own or have a financial stake in the companies looking after their buildings. Some unscrupulous landlords make the most of this opportunity to boost profits by increasing their fees or spending arbitrarily.
"Leaseholders have the main financial and emotional investment in their property and yet are almost completely excluded from the process by which it is managed. Regulation is urgently needed to protect leaseholders from abuse," says Chris Paterson, the co-author of the CentreForum report. Earlier this summer, for example, the Channel 4 Dispatches team revealed how one 80-year-old got a bill for £28,000 after her local authority freeholder decided to carry out some repairs.
Any disputes over service charges can be taken to the Leasehold Valuation Tribunal – in this case the council was found to have overspent by £1m – but this takes time and money (an application costs up to £500). It is also intimidating for leaseholders who can only afford to represent themselves against freeholders' barristers.
Until regulation is, hopefully, put in place, one important option for leaseholders is the "Right to Manage" (RTM), under which neighbours can join forces to set up their own company and take control of the management. Chainbow, a leaseholder advocate, or Urban Owners, a managing agent that works alongside leaseholders, offer help to leaseholders wishing to exercise this right, as does The Leasehold Advisory Service (lease-advice.org).
There are various conditions to meet first, including support of at least half of the leaseholders, but you do not need the landlord's consent or have to prove the managing agent is incompetent.
A step further is enfranchisement – buying the freehold of your block from the landlord. This obviously costs much more than acquiring RTM, but would mean no ground rent to pay and a potential uplift in property values.
If you want to buy a leasehold property, ask questions about the service charge and managing agents, but first and foremost, find out how long is left on the lease. This will not be automatically renewed and if you fail to extend it, while you can stay on as a tenant, at the end of that lease the freeholder becomes the owner.
It is easier to ask the seller to extend the lease and add the cost to the sale price, but if that option isn't available you must have owned the property for at least two years before you can extend the lease yourself.
"The first question to ask when buying a leasehold property is how many years remain on the lease. Above 90 is preferable, while below 80 something called 'marriage value' takes effect, and the cost of extending will suddenly shoot up," says Russell Quirk, a director of online estate agent eMoov.co.uk.
Opportunists who can pay in cash may be able to snap up a bargain as properties on short leases are cheaper, but most mortgage lenders insist on a minimum term left. As an owner, a short lease will therefore mean you could run into difficulties trying to remortgage or sell up.
Once a lease falls below 70 years you will be digging deeper to extend – and could also end up trapped in your home with nowhere to go.