Thursday, March 15, 2018

Leasehold Flats Are A Legal Minefield, Read This Before You Buy

Are Leasehold Flats A Ripoff Or A Good Investment?

Welcome to Money Tips Daily this is Money Kelly bringing you money tips to help you save and make more money!

Leaseholds properties are a legal landmine for the hundreds of thousands of uninitiated buyers purchasing leasehold flats every year.

Leasehold flats can be a legal minefield for the unwary buyer

Like me, the majority of first time buyers, as well as buy-to-let landlords, will buy a leasehold flat under rules which exist in very few countries outside the UK.

When you buy most flats in the UK, you are a tenant under a long lease which usually runs for more than 99 years, but diminishes in value as the lease gets shorter.

You pay ‘rent’, known as ground rent, to the ‘landlord’ or freeholder, which used to be a peppercorn rent but on new developments is increasingly running into several hundred pounds with sharp increases in the future.

You will also pay a service charge for insurance and upkeep of common areas. In blocks which have lifts, pools and concierge desks, expect to pay from £2,000 pa upwards.

In my experience of smaller blocks, the charge starts at a minimum of £100 per month for doing almost nothing apart from maybe a bit of cleaning or grass cutting, with larger maintenance being charged on top.

Management companies choose their own contractors to carry out works, which always cost about 5 times what you could get the job done for! 

Have you actually read your lease and if so, do you understand it?

The answer to both questions is invariably “no” because most of us give up after the first few pages because the ancient legal language is virtually impossible to understand unless you’re in the legal profession.

Who writes the laws? Lawyers of course! Of course we need Solicitors when buying a property, but ask them to explain everything and don’t be embarrassed to ask ‘silly’ questions!

Following the Grenfell fire, thousands of leaseholders are facing huge costs to remove unsafe cladding from their blocks of flats following a recent court judgement in Croydon.

Tenants will have to pay thousands of pounds to replace cladding on a recently built Barratt Homes development, despite buying their properties in good faith and presumably being reassured by a survey and NHBC 10 year guarantee against defects.

The London Mayor said the ‘government’ should pay, in other words, taxpayers who don’t even own a leasehold flat!

Did you know that forgetting to pay ground rent or service charges, or complying with maintenance orders could result in your lease being forfeited? That’s right, the freeholder can take your property back like some feudal landlord.

Leases are written in favour of the freeholder granting the lease, not the leaseholder paying hundreds of thousands of pounds.

Charity spends £114,000 to defeat a leaseholder over £6,000 disputed charge

Don’t take my word for it, just Google ‘leasehold problems’ and read some of the cases where leaseholders have tried to take on landlords.

In a recent case, a well known charity spent £114,000 to defeat a leaseholder in Onslow Square in Kensington over a £6,000 dispute – which came down from £8,247 originally demanded. The huge legal cost bill means that the woman leaseholder will have to sell her home.

I had a similar problem with a landlord, who I later discovered owned 12,000 freeholds, which I fortunately won thanks to a brilliant barrister and an understanding judge. Had I lost this David vs Goliath case, I would have had to pay out £20,000 in so-called legal costs over a £500 dispute!

I now prefer to buy freehold for obvious reasons, but realise that it is not always possible.

3 Tips when buying a leasehold property

If you must buy a leasehold flat, make sure you:

  1. fully understand the lease terms and
  2. try to buy flats where you have a share of the freehold and
  3. the tenants/leaseholders have control of the management.

Leasehold tenants can take back control of management subject to the ‘right to manage’ rules, but the law still doesn’t go far enough in protecting vulnerable leaseholders and a proper leasehold reform Act is long overdue.

As always, take legal and financial advice before entering into an agreement, and make sure you READ and UNDERSTAND that lease.

Education is key to investment success

If you would like to learn more about property investment and attend a seminar, I have a limited supply of complimentary tickets for an event with a leading training provider - email me

Check out my Podcast episode "Leasehold Property Is A Legal Landmine, Read This Before You Buy" on Anchor!

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