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The new and old problems of leasehold – Kagan Moss

The number of residential leasehold properties (houses and flats) owned on a leasehold basis in England is estimated by government at over 4.2 million –that is 18% of all housing stock.  Other sources suggest that there are 6.6 million flats and leasehold house in England and a further 0.2 million in Wales.

“On any basis it is clear that leasehold ownership is a matter that directly impacts on the lives of millions of people”.

The subject of leasehold homes was debated in Parliament in December 2017, following media stories of escalating rents and unsaleable properties.  The problem has arisen as developers have built and sold new freehold homes subject to annual charges (rent charge) and granted new leaseholds with high ground rents that escalate at regular reviews to excessive levels.  The result is that the builder has created a sale-able investment and the buyer’s property may, at worst become unsaleable or, at best fail to increase in value as the buyer might have expected. 

The problem is not an easy one for government to solve as both landlord and tenant may have sold on their interest.  Developers have in many cases sold to investors who have purchased the expectation of high ground rent income in good faith.  Any new legislation is not likely to be retrospective and so many cases will remain unresolved unless or until the leases are varied by agreement – something that may be cheaper to achieve sooner rather than later.  That has led some high profile developers to respond by changing their leases or buying them back.

We have advised in a number of cases particularly affecting new retirement homes around the country where buyers were deterred by leases on high rent terms or with high charges for management certificates on sale.  Whilst some buyers may have reasons to accept such terms others have used a buyer’s market to search and find alternative properties to buy that did not have the same drawbacks.

There are many other issues that need reform or modernisation such as unnecessary or unreasonable charges and the cost of obtaining accounts information from some managing agents.  The government are now bringing forward their proposals to combat the unfair practices.

The enfranchisement or lease extension market for houses and flats and blocks of flats is not new but increasingly relevant as 99 years leases granted over 45 years ago now have shorter terms remaining and are less attractive to buyers than longer leases.  Owners who wish to maximise the value of their flat on sale should consider whether to negotiate for an extension before they sell as if this process is left until late in the day then the bargain they strike to satisfy a buyer may not be as good as it could be.  There is a statutory process available last updated in 1993 but this can be cumbersome and complex and above all in a world that demands instant results the process does not always deliver.

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