Q. I have heard that buying a Leasehold property is not without its issues and that I should be cautious. Can you explain what a leasehold property is and flag up some of the pitfalls that a first time buyer like myself may need to consider?
A. If you buy leasehold apartment you are simply buying the right to live in the property for a set period of time – usually 99 or 125 years and occasionally 999 years. Around 3m people in the UK own leasehold properties, and this number is set to rise as most new-build flats are sold as leasehold. The land it stands on is owned by a freeholder or landlord, who will charge a ground rent. Many leaseholders claim that service charges are excessive, but that fighting the freeholders and managing agents is expensive and exhausting. Freeholds can be a money-spinner for house builders, who usually sell them on when they have finished building a development. They can also be bought and sold further down the line, often at auction. However, a landlord selling a freehold has to give existing leaseholders first refusal. Qualifying leaseholders can force their landlord to sell them the freehold through a process called “collective enfranchisement”. This can be long and expensive, yet worthwhile. Once the leaseholders own the freehold they can manage the building themselves. Another option for unhappy leaseholders is to exercise their “right to manage” (RTM), taking over certain responsibilities from the landlord without having to prove bad management. Leaseholders will need to set up an RTM company; the freeholder will then transfer the management responsibilities to the company. Service charges pay for the maintenance of the communal parts of a building, such as staircases, roofs and gardens, as well as buildings insurance. But although it is leaseholders who pay for maintenance, it is the freeholder or their agent who decides what work needs to be done, who will do it and what it will cost. Critics claim that managing agents may abuse this power by using their own subsidiary companies to carry out work, hiring surveyors at uncompetitive rates, earning commission from insurance brokers and adding a “management fee” on to bills. Most leases stipulate a schedule of major works, which includes jobs such as repainting the building’s exterior or interior, fixing tiles on the roof and clearing gutters every so many years. The bills can be eye-watering – five figures is not uncommon. However, section 20 of the Landlord and Tenant Act 1985 requires freeholders to consult leaseholders before carrying out work costing any individual leaseholder more than £250. The consultation must include details of at least two estimates and give leaseholders 30 days to respond. If you are thinking of buying a leasehold property it is important to read the lease carefully. Challenging the terms of a lease after contracts have been exchanged is much more difficult, and in some instances leaseholders have suffered aggressive tactics from the freeholder, aimed at discouraging them from escalating the dispute. Leaseholders in dispute with their freeholders or managing agents can get advice from the government-funded Leasehold Advisory Service. Ultimately, leaseholders can take complaints to the First-tier Tribunal (Property Chamber), known as the Leasehold Valuation Tribunal until last month. This can rule on issues including service charges, major works bills, lease extensions, changes to leases, freeholds and insurance.