Leasehold house and developers scam

Date Published 06 August 2017

Many readers would have heard ‘Leasehold ‘and ‘Freehold' properties but not necessarily know the difference between the two and the financial consequences each have on the owner. Freehold is where you own the property including the land on which it is located. However with Leasehold you typically find that the land on which you property is located is owned by somebody else or that you may own this land is conjunction with others. In its simplest terms you will find that Leasehold is where you have a flat and freehold is where you own a house. However these terms are starting to become muddled and this is resulting in large financial penalties on new buyers.

Leasehold flats have service charges to cover the upkeep of the communal parts including the buildings insurance. They also include ‘Ground Rent' which is rent paid to the freeholder for the right to have you flat located on the freeholders land. Detail of this are listed within the property lease agreement and with flats has tended to run fairly smoothly. However this is where the goal posts are about to change.

Developers of new estates over the last few years have seen opportunities to make money on freehold land by selling instead leases on houses instead of the freehold. Hence the land remains in ownership of the developer, who can sell this investment on. The whole purpose of selling leasehold houses is not to benefit the owners but as a money making exercise which some are terming a scam. For example, contained within the house deeds are clauses which state that the ground rent increases to unacceptable levels over a number of years, or that consent may be required from the freeholder to extend ones house to add say a conservatory. These fees for consent are both excessive and unwarranted, though the consequences are that vendors of such properties are finding that their homes are becoming unsellable as a result.

The Government has now got involves and the Communities Secretary Sajid Javid has said "Enough is enough. These practices are unjust, unnecessary and need to stop," Consequently, it looks like Leaseholds on new builds will be outlawed, which I would totally agree with.

I must admit that I am not aware of any such new builds within the Stroud area. Though I did come across a similar example of a freehold property where the developers had restricted pets without consent and we already had a pet in the property which we just happened to be renting. Talking with the developers their reasoning was to be able to take action against pet owners who did not keep their pets under control. Fine, though one rule for one can't be a different rule for another, otherwise precedence is established. Similarly, this whole situation illustrates well that buyers have not undertaken full diligence in the buying process. Perhaps because their legal advisers have been rather lapse and missed these important clauses?

Concluding the moral of the story, is that developers need to be honest and fair to their buyers and like any legal transaction be sure to fully understand all the small print before committing oneself….

Steven Sawyer, MNAEA, MARLA, DipRLM, Bsc, ACIB, CertDEA