Freeholders can stipulate onerous terms, fees, and sell properties on to third parties, but what is the actual extent of their authority?
In most cases, when people buy their home they purchase it on a freehold basis, which is where they buy the property and the land outright. However, if you buy your property leasehold, then you only purchase a right to occupy the property for the term of the lease—not the land accompanying the property.
Although this a minor distinction in ownership, it has major implications for leaseholders. For instance, freeholders are permitted to administer service charge, ground rent, permission fees, and sell the freehold on to a third party. Given the scope of their authority, we will explain exactly what they can do.
Ground Rent
Ground rent is a payment, normally made annually or half yearly, by the leaseholder to the freeholder for the use of the land. In some cases, leaseholders are only required to pay a nominal rent of a few pounds to maintain the lease.
However, some ground rents are burdensome and can reach hundreds or even thousands of pounds a year. Some freeholders have introduced terms in their leases whereby ground rents double every decade. More seriously though, some of the onerous terms surrounding ground rent have been constructed so as to appear innocuous or less burdensome.
Speaking to Which? magazine, Andrea Millward revealed how she only discovered after purchasing her property that the incremental increases to her ground rent took place every 10 years, rather than every 25. Millward currently pays £590 annually but this will double to £1,180 by 2028 and £2,360 by 2038.
As Which? points out, there are presently no “rules surrounding how much a freeholder can charge and how often they can increase the bill to turn leasehold homes into goldmines”. Moreover, if the conveyancer happens to overlook the intent of the ground rent clause, the leaseholder is bound by that agreement regardless.
Permission Fees
On top of ground rent, many leaseholders must pay their freeholder to make any alterations to their property. Although this seems fairly innocent on the face of it, some freeholders have taken permission fees to the extreme.
One leaseholder spoke to Which? and outlined their frustration regarding a £2,500 permission fee to build a conservatory. Other leaseholders highlighted how they were required to pay for permission to own a pet, replace a doorbell, and build an extension, costing £252, £60, and £2,000 respectively. Furthermore, some freeholders will not even respond to requests for permission without being paid a fee—reported as ranging from £50 to £108.
As is the case with ground rent, there is a real “lack of protection against unreasonable permission fees”. Freeholders can simply incorporate terms into the lease stipulating the right to administer permission fees. Again, leaseholders are still required to pay these fees even if the conveyancer fails to adequately advise them of the risks.
Freeholds can be sold on to Third Parties
Once a leaseholder has owned their home for two years, they are legally entitled to acquire the freehold—otherwise known as enfranchisement. However, freeholders can sell their interests in land to investment companies without informing leaseholders first. While this is perfectly permissible, it can make enfranchisement much harder for leaseholders.
Millward said the original leaseholder promised her the “right to buy her freehold… for 10 times the annual ground rent (a total of £2,950)”. After she had looked into the problems regarding her doubling ground rent, she discovered that her freehold had been sold to a third party in the meantime. After contacting a specialist valuer, she was informed that enfranchising would actually cost between £30,000 and £40,000.
“It’s not uncommon for freeholds to be sold on several times to different investors, who then use management companies to collect debts from their leaseholders. This makes the system even more opaque and necessitates a great deal of research from the leaseholder to find out who their freeholder actually is.”
Due to the lack of regulation, freeholders do have the authority to impose onerous terms on leaseholders. Even though leaseholders are entitled to enfranchisement, freeholders can make this process harder.
If you are considering purchasing your property leasehold, it is important that you consult a specialist leasehold valuer beforehand. Nick Plotnek has over 35 years’ experience and will ensure the best deal on your lease.
From: Which? (Stephen Maunder)
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