When an Englishman's home is the mighty landlord's castle

If you're buying your own property, how do you ensure that you're not at the mercy of freeholders who impose unreasonable charges and restrictions?
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The Independent Online

Anyone who owns or has tried to buy a flat in England or Wales will be aware that most properties are leasehold. So even though you're paying tens or even hundreds of thousands of pounds for your home, you won't actually own it outright.

Anyone who owns or has tried to buy a flat in England or Wales will be aware that most properties are leasehold. So even though you're paying tens or even hundreds of thousands of pounds for your home, you won't actually own it outright.

Instead, you are paying to live there for a certain number of years and are a tenant rather than an owner. In most cases this doesn't cause a problem, but if you're one of the unlucky ones with an unscrupulous freeholder, your own home can become your own hell.

With leasehold houses or flats, the building itself remains the property of the freeholder, or landlord, who is responsible for maintaining the exterior, the communal areas and the grounds. The leaseholder has to pay ground rent and, in purpose-built blocks of flats, a service charge every year to the freeholder. The big advantage of this is that should there be a problem with the plumbing or the roof, the landlord is obliged to arrange the repairs.

But Robert Eden, partner at solicitors Bower & Bail, says that this can be a double-edged sword. "Some people like the fact they don't have to worry about sorting out the guttering or getting quotes for work on the common parts, but others don't like the fact they don't have control of any works that are carried out," he says. "The freeholder can go to Expensive Ltd for quotes just as easily as he could go to Cheap Ltd."

Leaseholders can challenge this, though they may have to be prepared to resort to the law. Although the landlord has to get three quotes and give notice of what the cost of the work will be, the tenants can dispute the charge if they regard it as unreasonable. Mr Eden recommends speaking to the freeholder to try to keep things amicable. However, if no agreement can be reached, residents can take the case to a Leasehold Valuation Tribunal (LVT).

Probably the most serious threat faced by leaseholders is the freeholder's right to forfeiture. If the tenant is deemed to have broken the terms of their lease agreement, the landlord ultimately has the right to go through the courts and repossess the property. This last resort is rarely invoked, although there have been stories of forfeiture being threatened just because the tenant was late paying their service charge.

The Commonhold and Leasehold Act, passed last year in England and Wales, is intended to modernise what was seen as an archaic system. The Government has addressed the issue of forfeiture by outlawing this procedure for debts of £500 or less.

While you shouldn't let the horror stories scare you off, it is crucial to scrutinise the terms of the lease and make sure your solicitor checks there are no tricky clauses. Philip Freedman, senior property partner at solicitors Mishcon de Reya, says a landlord can't amend or add clauses to a lease at will, so most contracts should be fine. But if it's a very old lease, it may not include clauses enforcing the landlord's obligations. Occasionally you may also come across a contract that has been defectively drawn up, in which case you can apply to the courts to get it amended.

Common restrictions in leases are clauses not allowing you to keep pets, hang washing out in the garden, have window boxes or play a musical instrument after a certain time. More significantly, a lot of leasehold contracts also forbid sub-letting, which will cause problems if you are buying a property with the intention of letting it or if you have to relocate for your job and would rather rent the property than sell it.

The other things to look for are clauses stipulating what you can and can't do to the interior of the property. You may find that you're not allowed to alter the layout by, say, knocking down a wall.

The length of the lease should also be an important consideration. Leases can be anything from one to 999 years, although new ones tend to start at 99 years. Ray Boulger, senior technical manager at mortgage broker Charcol, says that as long as there are more than 70 years to run on the lease when you buy, there shouldn't be a problem.

All mortgage lenders have clauses saying there must be x number of years – usually 25 or 30 – left on the lease once the mortgage term has come to an end. This is because as the lease runs down, so does the value of the property, as it will become harder to sell on. So lenders need to ensure that, should the property be repossessed, they will be able to cover the loan.

It is possible to ask your landlord to extend the lease but this can be an expensive option, particularly if the existing one is quite short.

One way round the restrictions of a leasehold is for all the tenants in the property to join together and buy the freehold. The Commonhold and Leasehold Act has made it easier to do this.

Previously, the leaseholders had to have lived in their properties for at least three years, two thirds of them had to agree to the purchase, and the landlord had to agree too. Now, however, leaseholders have the automatic right to buy the freehold providing half of the tenants agree.

If your flat is one of only, say, three or four in a converted house, there shouldn't be too many problems with owning a share of the freehold. But if you live in a larger block and there are lots of shareholders, you could have difficulty reaching agreement on work that needs to be done. Mr Freedman at Mishcon de Reya points out that under the leasehold system both landlords and tenants have obligations that are fully enforceable, but such obligations don't exist between people sharing the freehold.

The new Act also included the introduction of a commonhold system, which already exists in Scotland. This should take effect either from the end of this year or early next year. With commonhold, owners of flats have complete ownership of their homes plus a share in the common parts, so in effect the arrangement is a hybrid of the leasehold and freehold systems. And Mr Freedman says it combines the good elements of both: you don't have to pay ground rent but the essential obligations, such as maintenance of the stairwell, will be enforceable.

This may sound like the ideal solution but, unfortunately, problems are anticipated. The Campaign for the Abolition of Residential Leasehold (Carl) welcomes the introduction of commonhold but points out that under the current format proposed by the Government, few leaseholders will be able to transfer to the new system. This is because in order to buy the commonhold there has to be universal agreement between all the tenants and their mortgage lenders, and the freeholder must also agree.

Again, in a converted house, this may not be a huge problem, but getting the agreement of all home owners in a modern purpose-built block will be a much harder task.