Author Topic: Q for UKers - RE Leaseholds and Freeholds  (Read 1325 times)

jim555

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Q for UKers - RE Leaseholds and Freeholds
« on: August 29, 2017, 01:17:23 PM »
I read a story that the government wanted to prevent new leaseholds.  I looked it up and it sounds like a total rip off scheme from feudalistic times.  How prevalent are leaseholds in the UK?  I wasn't even aware of such a thing could exist being from the US it is unheard of.


dreams_and_discoveries

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #1 on: August 29, 2017, 02:02:23 PM »
Yeah, they are an interesting legal structure, much more common in some areas and types of housing than others, but not an uncommon thing and something you need to bare in mind when buying - try to avoid a leasehold if you can.

Roger D

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #2 on: August 29, 2017, 03:12:05 PM »
On the other hand, leasehold property is often much less expensive than the same property purchased as freehold. I would still avoid it though, because it makes life more complicated.

UKMustache

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #3 on: August 30, 2017, 12:40:37 AM »
Yeah, they are an interesting legal structure, much more common in some areas and types of housing than others, but not an uncommon thing and something you need to bare in mind when buying - try to avoid a leasehold if you can.

If you're planning on living in the property and it has a long (150 year plus) lease left with a peppercorn rent then there's not really anything to be concerned about.

On the other hand, it can be a bit of a minefield for a rental property or one that may become a rental property in the future.  I would also avoid any leases created in the last 10 years or so, developers seemed to realise they could charge ever increasing amounts.

skip207

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #4 on: August 30, 2017, 01:41:08 AM »
The govt are not blameless as its not just ground rent.

Local authorities have been pushing new house builders for the last 15 years to go down the lease hold route PLUS monthly management fee.
This is because they (council) don't want the cost of maintaining the site, mowing grass, clipping trees.  The councils also make house builders make a "donation" to the local pot. 
Its so corrupt. 

To start with, 2000-2010, most builders were quite fair.  Set up a LTD, made all the residents members, divide costs by number of houses plus small admin fee.  Paid annually in addition to small ground rent if applies.

In our case we are free hold but have a management fee, so no ground rent to pay. 

However, in recent years, >2010 builders have twigged its a great way to get a bit more income.  So management fees have gone up and ground rents have gone up.

We looked at a new build last year, the ground rent was 150 per year and the management fee was 650.  Madness.  We currently pay no ground rent but management of just under 200 a year.  In addition we have to pay for things like public liability insurance.  Its just crazy.  And that's cheap, I hear stories of 1000+ per year.  We also have to review our management fee each year to stop it going up.  When you dig deeper guess who owns the management company... that's right the house builder.  Funny eh.

We just had a 10 year fight with the LA to adopt the roads.  We just won it but my god did they make it difficult.  We found out a couple of years ago the house builder made a payment of 80k to the local authority on completion for "local regeneration" but nothing was ever done with that money.  We have also been paying for the upkeep of some brown field land because the council palmed it off in the deal - no doubt under the table.  So now we have just been landed with a massive bill to sort out some invasive plants which have taken hold.  The estate has 50k reserves but its basically all going to get spent on sorting out someone elses land. 

Sorry I have gone off on a bit of a tangent.  Anyway, if you are looking to buy an older house it will be more simple, but if you are looking to buy anything built in the last 15-20 years make 100% sure there are no management fees as its a royal PITA.

londonstache

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #5 on: August 30, 2017, 05:17:08 AM »
Another issue that seems to be occurring with new builds is the land underneath is being sold off to other investment companies who are hiking the annual payment. This august journal gives an example:

http://www.dailymail.co.uk/news/article-4391932/Families-leaseholds-trapped-unmortgageable-homes.html

I bought freehold and at the moment I'd prefer to avoid leasehold like the plague.

sea_saw

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #6 on: September 02, 2017, 03:45:10 PM »
On the original question - pretty much all flats in England and Wales are leasehold. For myself, as a house in my preferred area was way out of reach price wise, I knew I was only looking at leasehold properties. I ended up doing a lot of research, ask me about short leases, that's a fun kettle of fish... >:( there isn't really another way of doing flats here that's taken off.

The question is who owns the lease and what do they do with it. The flat I've ended up with is, obviously, a leasehold. But each of the six flats (it's a conversion of a period property) owns a one sixth share of the freehold. So no ground rent is being charged, and leases are long and renewed for free purely as a formality.

The service charge is 100/month which is kind of steep. That's a separate but related issue to the type of ownership and comes with the territory of a building that is shared between multiple separate households. Annoyingly for me, the service charge has historically been set at 60/month, and the residents resisted raising it despite pleas from the management company until just before I moved in. At 60/month they were basically treading water, only getting enough in to cover expenses (buildings insurance, taking care of communal areas and garden, some damp proofing works, etc etc) but not enough to build up a sinking fund. For a building of this age that's not really appropriate, as it's inevitable things will come up - e.g. it's clear that in the next five years or so some work will need to be done on the roof, and that's likely to be in 10k+ territory which they currently don't have in the coffers.

Ultimately while the 100/month is annoying, I don't think I'd be spending much less if I was more directly responsible for maintaining a similar sort of property. Of course if it was a shiny new build that would be a different matter. And if we don't think the management company are doing a good job we're the ones in a position to replace them (hopefully not though, they seem pretty good from the accounts etc I've seen).

So basically, a leasehold is a lot less of a big deal if you're also the freeholder :) that's very common in small conversions (house/corner shop/church building/etc turned into a small number of flats), and less so in purpose built developments though. And every lease will be different so obviously actually reading them is a must! Many leases are totally reasonable even without a share of freehold arrangement. Others have weird stipulations or unexpected financial impacts.

Leasehold houses are more ridiculous, I really can't see a single excuse to do that.

dreams_and_discoveries

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #7 on: September 03, 2017, 01:33:03 AM »
Sea_saw, I'd call yours a share of freehold, where all the leaseholders collectively own the freehold.

Ex-council houses are usually leasehold, with the council retaining the freehold, and lots of terrace and estates that were originally built as workers accommodation by the ' benevolent' boss/squire types still remain leasehold.

sea_saw

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #8 on: September 03, 2017, 05:14:36 AM »
Exactly, it is a leasehold with a share of freehold. I did sign a lease that was pretty standard stuff, and was totally separate to the paperwork regarding the freehold. On advertisements you'll generally just see 'leasehold' - occasionally they do mention a share of freehold as a selling point, but usually the most you'll know about the lease is how long there is left on it. In fact the seller didn't even know he had a share of the freehold, so it was a pleasant surprise for me when my solicitor discovered it during the sale.

I understand the history of how a house can end up leasehold, but it still seems like it sucks when there isn't even the excuse of multiple dwellings on top of same bit of land. I guess ultimately it can be the same as flats, if your freeholder isn't charging you rent or fees, then so long as you stay on top of the lease length and renew in advance of the 80 year mark you're fine. From my experience flat hunting though, that's a big if, and a lot of people don't pay any attention to it then get screwed. Bleh!

former player

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #9 on: September 03, 2017, 07:49:01 AM »
If you are buying a flat in a building with many other flats there need to be enforceable arrangements between all the different owners to ensure that the building as a whole is properly maintained, cleaned, insured, etc.  The best way to do that in English law (also Wales, but Scotland and NI have different legal systems) is through a leasehold.  It is possible for the freehold to be owned between the leaseholders: this effectively ensures that the leases will never run out (the freeholders can always grant themselves longer leases at no cost).   As to maintenance costs, the leaseholders can either employ a management company (easy but more expensive) or do it themselves (potentially cheaper but more difficult to agree on actions and keep the arrangement going over a long time).  The real point about the maintenance costs on a leasehold flat though is that the need for a maintenance arrangement makes the costs obvious and unavoidable upfront whereas the costs of maintaining a freehold house are often not so obviously a regular expense and are sometimes neglected altogether.

There are almost no good reasons for a house in English law to be a leasehold.  As skip207 sets out, some houses on housing estates are sold as leaseholds so that maintenance costs which don't relate to the house itself can be imposed on the house owner, or because someone has decided that they can profiteer from the arrangement.  If the leasehold relates to maintenance costs for community facilities (roads that the local council doesn't look after, or recreation areas, etc.) then the effect of the leasehold is I think very similar to the effect of an HOA in the USA.  Personally, I'd have nothing to do with a leasehold house  - my own have always been freehold.
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Kwill

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #10 on: September 03, 2017, 01:52:12 PM »
I read a story that the government wanted to prevent new leaseholds.  I looked it up and it sounds like a total rip off scheme from feudalistic times.  How prevalent are leaseholds in the UK?  I wasn't even aware of such a thing could exist being from the US it is unheard of.

I'm from the US, living in the UK, and currently looking for a leasehold flat. In US terms, it's similar to a condo. I would buy the flat and would pay an annual ground rent and a service charge that would go toward maintenance of the building and roof and grounds, maybe also water or even heat, depending on the situation. As others have said, freehold houses are preferable, but I live in an expensive city and want to stay where I can bike everywhere and not need a car. A freehold flat is possible, but it could potentially run into problems if the building weren't maintained.

Playing with Fire UK

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #11 on: September 04, 2017, 01:38:30 PM »
I read a story that the government wanted to prevent new leaseholds.  I looked it up and it sounds like a total rip off scheme from feudalistic times.  How prevalent are leaseholds in the UK?  I wasn't even aware of such a thing could exist being from the US it is unheard of.

I'm from the US, living in the UK, and currently looking for a leasehold flat. In US terms, it's similar to a condo. I would buy the flat and would pay an annual ground rent and a service charge that would go toward maintenance of the building and roof and grounds, maybe also water or even heat, depending on the situation. As others have said, freehold houses are preferable, but I live in an expensive city and want to stay where I can bike everywhere and not need a car. A freehold flat is possible, but it could potentially run into problems if the building weren't maintained.

The thing to check is how the ground rent escalates. The row of late was leaseholds (often for houses), with ground rent that would start reasonably, and then double every few years until they were extortionate. Sometimes the purchasers would only look at how much the ground rent is this year, rather than how much it could be in thirty years.

Many leaseholds are there to pay for the common repairs, others are in place to gouge more money out of people. 

Kwill

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #12 on: September 04, 2017, 02:27:35 PM »
The thing to check is how the ground rent escalates. The row of late was leaseholds (often for houses), with ground rent that would start reasonably, and then double every few years until they were extortionate. Sometimes the purchasers would only look at how much the ground rent is this year, rather than how much it could be in thirty years.

Many leaseholds are there to pay for the common repairs, others are in place to gouge more money out of people.

:-( Do they have to tell you that about the ground rent? That seems like the sort of thing that would have to be disclosed, but I can only remember one ad that mentioned the increase in ground rent.

financialfreedom

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Re: Q for UKers - RE Leaseholds and Freeholds
« Reply #13 on: September 05, 2017, 08:02:33 AM »
Generally in the UK when buying property (and some other things), the sellers/agents don't have a duty to tell you anything.

You need to ask and solicitors have standard forms for this which cover most eventualities. If they answer the question, then they can't lie or mislead or you might have a claim. However, the seller can simply leave the form, or some parts of it, blank. If they do this then it's up to you whether to proceed or not. Buyer beware, as we say.

In this specific example, the solicitor will check the lease, and you can ask him/her to explain anything you aren't sure of, including hikes in the rent.