In a time of universal deceit – telling the truth is a revolutionary act

There is an injustice having been created by major builders and it’s still being repeated by several estate agents reselling homes, this applies to both houses and apartments. Misleading information including intentionally withholding details of ownership and fees. Its particularly an issue with Leasehold residences.

When you pay for a leasehold property either home or even business you are only buying a contract, an agreement to allow you to live or work there for a given period of time. That allows the building and land owner, unscrupulous landlords to apply a whole raft of charges, often making the leasehold unsaleable.

Owning the building is a long-standing misunderstanding however recent manipulation of the leasehold system in England and Wales has now reached extreme levels of abuse.

Buyers legally have to be informed exactly what they are buying, or not buying, as soon as a property is advertised. No if’s No But’s!

This page is designed to be advisory only however the following organisations will be closely monitoring the situation.

The CMA (The Competition and Markets Authority) who are currently investigating mis-selling homes, the National Trading Standards Estates and Lettings Team, The Property Ombudsman and other relevant agency organisations. The Law Commission, APPG (All Party Parliamentary Group) on Leasehold reform and LKP Leasehold Knowledge Partnership the secretariat for the ministers, and also The National Leasehold Campaign group and members.

Omissions in adverts are equally confusing and greatly damage those who are lawful, the honest builder or estate agent, but especially the customer.

We ask all estate agents comply fully, as a matter of urgency, with their obligations and provide the correct and full information. This information was formerly entrusted with the solicitors to attain, usually after considerable buyers expenses have been incurred.

Its recommended, prior to launching a sale the agent should have detailed all the information and have satisfied themselves by obtaining Land Registry copy title deed, copy Lease, and other information, included but not restricted to an LP1 and Leaseholder pack. Suffice to say the vendor may be advised to engage their solicitors at this early stage.

Defining Leasehold

The government define leasehold and publish a guide available to download. “How to buy a leasehold home” https://www.gov.uk/government/publications/how-to-lease/how-to-lease. 

"If the property you are interested in is leasehold, this means you, as the buyer (i.e. the ‘leaseholder’) will be signing a contract which grants you the right to occupy a property for a fixed number of years. This length of time (i.e. the ‘term’) should be specified in the contract (i.e. the ‘lease’). The building structure and any common parts will be owned by the freeholder who is likely to be your landlord".

Marketing

Sale Boards

Advertising must be honest and not misleading, neither should it have any material omissions. A “For Sale” board outside a leasehold property could be deemed to be misleading as it omits that its only the lease which is for sale. 

The regulations defining this is “The Consumer Protection from Unfair Trading Regulations 2008”  

In particular see Part2  Prohibitions  (5).

(2a) the existence or nature of the product;
(2b) the main characteristics of the product (as defined in paragraph 5);   

“Likely to deceive the average consumer” is the all important element. Currently the average consumer doesn’t understand Leasehold. Historic deception isn’t a valid argument.

Trade publication features

"Thinking of buying a Leasehold home. It is only a rental agreement     Buyers are legally only a tenant with obligations and probably a mortgage"

Katie Kendrick - National Leasehold Campaign.
The Property Ombudsman  (TPO) publishes A code of practice for residential estate agents 
Please note:- 

4e For leasehold, commonhold or managed freehold properties you should make the seller aware that they should contact their lease administrator, commonhold association, or freehold manager to obtain material information required by potential buyers, as set out in paragraph 7k.  

7d Any board you do erect must be appropriate.

7e When you put up a board you must by law comply with the appropriate regulations. You must accept liability for any claim arising under these regulations in connection with the board.

7i You must by law comply with the Consumer Protection from Unfair Trading Regulations 2008 (or the Business Protection from Misleading Marketing Regulations 2008 where applicable). The Consumer Protection from Unfair Trading Regulations 2008 require you to disclose any information of which you are aware or should be aware of in relation to the property in a clear, intelligible and timely fashion and to take all reasonable steps to ensure that all statements that you make about a property, whether oral, pictorial or written, are accurate and are not misleading. All material information (*) must be disclosed and there must be no material omissions which may impact on the average consumer’s (*) transactional decision (*). Where information is given to consumers and/or their representatives, it must be accurate and not misleading.

7k In accordance with paragraph 5e, where the title is registered at HM Land Registry, you should seek to  obtain title information to verify the tenure of the property.

• In regard to leasehold properties, in accordance with paragraph 4e, you must provide material information to the consumer so they can make an informed transactional decision. Material information in respect of the lease includes, but is not limited to,
the following:
Number of years remaining on the lease;
Amount of ground rent (*) and when payable, together with details of how this will
increase over time, if applicable;
Rent payable in the case of a shared ownership arrangement;

For leasehold, commonhold and freehold properties where the owner has a legal obligation to contribute towards the maintenance costs of a shared amenity, material information would include, but is not limited to the following:
• Amount of service charge (*), and when payable;
• Amount of any event fees (*), and when payable;
• Amount of reserve fund (*) contribution and when payable (if not already included
in other charges);

Charges and implications need highlighting.

Leasehold

With Leasehold there will typically be an annual charge to cover common areas, i.e.the gardens or communal stairs (if any). Who can manage this, and if the owners have a right of veto or self management is also important. These should always be detailed in sales literature.

Beware a management company who is only answerable to the freeholder can virtually charge Leaseholders with impunity, check the Management structure, Estate, and Deeds of Covenant, Permission Fees, Requirement to contribute to long term reserve funds to name but a few should be listed.  The format, legalise and conditions are as many and varied as there are solicitors. Difficult to dissect the relevant detail even solicitors miss salient points.

Freehold and Commonhold

In Freehold and Commonhold developments you own the house or apartment (Freehold) and are in charge of your own future costs as well as enjoying the appreciating asset but there can also be ongoing charges, the buyer needs to understand these and any future implications. 

Freehold – some contain Estate or Rent Charges which are binding commitments to contribute to costs of maintaining common areas, playgrounds, even streets, lighting, and drainage. 

Commonhold – The residencies (Units) are Freehold and all common areas are jointly owned and managed by the owners under a Commonhold Association registered at Companies House. Importantly this gives the owners control over their joint expenditure. Variations, e.g. voting or pets allowed etc can be found within the “Local Variations” appendix of the Commonhold agreement. Compliant Commonhold agreements,  are written in a prescribed way as a code of good practice and would therefore be similar in all other developments except the “Local Variations” folder. 

What is relevant? and why?

This tab is currently under development.

This tab is currently under development.

This tab is currently under development. Please see below this section.

Staircased is another variant of leasehold and has the same leasehold issues.  It differs however as it offers an ability to part pay periodically representing shares of the total value, often with proportionate discount from the rent.

Shared ownership is misleading as until you have completed paying all the value you don’t have any ownership rights at all. The co-owner, typically a housing association, retains all the rights to the property and becomes the customer’s landlord under the shared ownership lease. 

In the 2008 case of Richardson v Midland Heart Ltd [4], the High Court confirmed that a shared ownership lease – and the entirety of the interest for which the customer has paid a premium and rent – is an assured tenancy to which the Housing Act 1988 (the Act) applies.   That means that, if and when a shared ownership lease is terminated by a court order for possession made under that Act, there is no option for relief for the leaseholder or its lender (with the latter’s  security being irrevocably lost).  In those circumstances, the leaseholder is not entitled to the return of its premium, nor to any capital appreciation on the property, and indeed the housing association/landlord may receive a significant windfall.

Its therefore misleading and potentially an offence in contravention of the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs[5] for housing associations, landlords, developers or lenders to advertise or refer to shared ownership schemes as “part buy, part rent”, or indeed by using any other terminology or slogan which suggests that the customer  purchases anything other than an assured tenancy leasehold interest at any time prior to the 100% staircasing stage.

 

If  an agreement existed which detailed the ownership as a separate legal entity, e.g. the builder or housing association in partnership with the buyer, and that partnership gave rights and discounts to the buyer to rent. If this existed, should there be cause to evict the buyer then any balance of funds would be shared between the parts of the entity including the buyer.

That is clearly not the case and the buyer is again merely a tenant until payments have been made fully representing the whole value.

Further reading  

Walker Morris 

Leasehold

Leasehold Years

It’s a type of tenancy agreement

Check the starting date stated within the lease as they are usually different to the age of the development and that will affect the reducing term. 

The law allows lease extension after owning the property for two years, but the cost of that lease extension goes up dramatically once the term of the lease is less than 80 years. For this reason, some mortgage lenders want there to be as much as 90 years left to run so that there is time to extend the lease before costs go up. 

Above 100 years At the time of writing generally acceptable but currently being reviewed.

100 – 80 years:- Reducing value. Getting nearer the 80 year mark, will require fees to extend / maintain any value before   “Marriage Values” costs are added to any extension.

80 or Less years:-  Cut off date for many mortgages. Harder to borrow against, its reducing security, reducing in value, being nearer the return to freeholder date. 

Extending a lease with less than 80 years also incurs a significant additional cost called “Marriage Value”.

The leaseholders "Freeholder"

Company or Private Investor:- An investment portfolio can sell without giving the leaseholder notice or opportunity to purchase. 

80 or Less years:-  Cut off date for many mortgages. Harder to borrow against, its reducing security, reducing in value, being nearer the return to freeholder date. 

Extending a lease with less than 80 years also incurs a significant additional cost called “Marriage Value”.

Ground Rent

Annual cost payable to the freeholder, detailed in the lease. The cost now. and when applicable, future increments / method of calculation.

Escalation above inflation indexes, e.g. doubling every 10 years which can become thousands per year potentially rendering the home unsaleable.

When an escalating ground rent provision takes the ground rent over the £1,000/£250 limit, the system of tenure and the leaseholder’s rights will be changed fundamentally, an escalating ground rent clause is something about which a potential buyer must be warned as a matter of law, unless subject to a £1,000/£250 cap.

£1000 in London or £250 outside, or greater per annum. a leaseholder is classed as an assured tenant.  s 1(1) and (2) and Sch 1 of the Housing Act 1988,

This means, for even small sums of arrears, leaseholders could be subject to a mandatory possession order if they were to default on payment of ground rent. Leaseholders can be evicted – irrespective of any reasonable circumstances. Note: All equity is lost when the possession order is made. 

Grounds for eviction also include but not limited to Antisocial behaviour, conviction for certain offences, certain immigration statuses.

A leaseholder may end up facing proceedings from an aggressive freeholder.

Other rights can also be ousted, for example, the right of first refusal on a sale of the freehold for leaseholders of flats under the Landlord & Tenant Act 1987 is also ousted because a tenant under an assured tenancy is not a “qualifying tenant” under s.3 of the 1987 Act.

Greater than 0.01% of the property value or greater than £500 per annum is perceived onerous and may also restrict mortgage availability.

Legal interpretations thanks to Rawdon Crozier (Barrister & Mediator, KBG Chambers, Plymouth, Truro & Exeter; www.kbgchambers.co.uk, 01752 221551

Management

Who controls the management? Is there the ability of the leaseholders on any development to determine who manages their common areas, to hire and fire the estate administration and maintenance managers. Who arranges appropriate insurances, prepares annual and long term budgets, collects funds, and to whom they report can fundamentally alter the charges levied on an annual basis. 

A contractor employed by a management company on behalf of a Freeholder isn’t responsible to a leaseholder. The management company could take a fee for arranging and the Freeholder for just being the Freeholder. Likewise its not unusual for them to also inflate other costs including insurance policies.

 

"Buying a lease without having management control of these charges is a bit like giving someone an open gold debit card to your bank account - and at the same time putting your lease up as security!. The big problem is a good freeholder or manager today may sell out tomorrow as these investments are fetching many thousands of pounds due to their assured high income. 

Unfortunately there are many leaseholders in this situation who can't afford to pay, can't afford to stay, can't afford to sell below their borrowings, and are in danger of being evicted, and may have to file for bankruptcy, ending their dreams for a secure home and future. - All because the management control or fees wasn't explained or understood properly.

Service Charge

Service charges are the contribution by the property owners towards the maintenance of the shared areas and amenities. These vary hugely depending on who controls the management / maintenance, how big the communal areas are and the type of shared amenities. Current and projected annual fees.

Permission Fees

Charges levied by the freeholder for considering changes to their property, addition of conservatory etc. Ensure any additions have appropriate Freeholders permission as retrospective permissions can be hefty. In extreme cases permission has been a requirement of some leases to change the doorbell and even carpets.

Planned major expenditure

Is there any Section 20 notices served indicating future intent for significant building or maintenance works. Leaseholders may be required to a pay additional monies as part of their agreement. 

Buyers are recommended to also ask their surveyor to see if they can see any work that might come up which has not yet been consulted on.

Sinking or Reserve Funds

Every leasehold estate should also have a longer term maintenance schedule, and appropriate reserves budgeted for, and a savings account with appropriate values scheduled to meet those needs without significant future cash requirements. A poor schedule or low savings should be circumspect as further cash input may be required. A property with proportionate low value of savings is a material item to be declared. Monies are not paid out on sale of any leases and therefore must be considered in the asking price.

Administration Charges

The administrator will charge for additional leaseholder services like providing a presales information pack detailing all the aforementioned elements, for liaising with solicitors, answering questions and advising on final accounts prior to sale of any lease. These vary greatly from appropriate admin / time fees to realistically cover costs or can be extremely high to facilitate golden profits as a sale can’t complete without their information or the Freeholders authority.

Best to be forewarned on the efficacy of the administrator. 

Event Charges

The administrator should provide a list of chargeable events. Leaseholders may be required to register the occupiers or be charged at change of tenants in sub-let apartments – where sub-letting is permitted. 

The devil is in the lease detail…who controls these costs?..Freeholder, Management or Leaseholder…and it all must legally be declared within sales information.