Ah, home ownership. It’s the holy grail of living arrangements, isn’t it? No more nasty landlords and money-grabbing letting agents. Now you’re king or queen of the castle and you can install a hot tub in the garden, paint a Banksy-style mural on the wall, and finally get the canine friend you’ve always wanted.
Or can you? If you buy a leasehold property you’re likely to find you’re bound by as many, if not more, rules than you were as a tenant. And if you think the rip-off fees stopped when you bought your home, think again: letting agents are mere amateurs compared to unscrupulous freeholders and the equally dodgy management firms they employ.
Bitter about that time you were charged £300 to sign a new rental contact? It will seem like the glory days when you’re stumping up £1,200 for permission to install a boiler in your own house.
It used to be just flat owners caught in the leasehold trap but these days it’s house owners too. The past few years have seen house builders such as Taylor Wimpey, Bellway and Persimmon sell new build houses as leasehold, as opposed to freehold. Why? To turn their customers into cash cows.
Brady Solicitors kindly explained how this was done on its website.
‘A carefully drafted lease can help to maximise the investment potential of ground rents. In recent times leases have been optimised in terms of the rent review clauses, notice fees and other provisions, to benefit the developer and future freehold owners,’ it says.
The law firm later removed the page entitled ‘Ground rents: expert view’ after criticism (I still have an archive copy if anyone’s interested).
Call me a cynic but it’s all there in black and white. Solicitors have been helping developers write leases that aim to milk leaseholders for all they’re worth, relegating ‘owners’ to tenant status in the process. Only it’s worse than being a tenant – you can’t just pack up and leave when you ‘own’ a leasehold home. You’ll need to sell it on to someone else happy to live with a strict set of rules and ever-increasing ground rent.
‘Ground rent’ is the fee for the privilege of your house being on someone else’s land. Traditionally it was a nominal ‘peppercorn’ amount of a couple of quid but these days a ground rent demand can bankrupt you.
Home builders, aided by Brady Solicitors and the like, have smuggled onerous ground rent clauses into leases, hoping no one would notice during the conveyancing process. The worse leases typically have a ground rent starting at £295 and doubling every 10 years. This results in an annual bill of £9,440 in 50 years’ time. Yes, almost £10k a year to continue to live in the house you ‘own’.
A decent conveyancer would point out this clause would make a property a bad buy but decent conveyancers are not a common feature in the world of new build. Many solicitors ‘recommended’ by home builders failed to act in the interests of their clients.
How can leaseholders escape the leasehold trap? In theory, they could buy the freehold to their home. But those who tried to do so have discovered homebuilders’ next trick: freeholds are routinely sold to secretive investment companies who want to keep hold of them for their money-making potential.
Ground rent investors such as Adriatic have quoted leaseholders looking to buy their freehold 10 times the price they were told in the sales suite.
But these companies don’t just cash in on ground rents – but ‘consent’ fees too. These are the fees you pay for doing normal everyday things in, or to, the property you own such as installing a new boiler, building a conservatory, or getting a pet.
Homeground manages freeholds on behalf of Adriatic. It charges £50 to even consider a request to keep a pet, probably more to grant a ‘licence’. If you get the urge to install a new boiler, you’ll have to stump up a minimum of £1,200 for a ‘licence’ to do so. And if you want to quote to buy the freehold – and escape this nightmare – the quote alone will cost you £108.
Some everyday activities are banned altogether by way of ‘restrictive covenants’. An engineer who paid a reservation fee and arranged a mortgage for a Persimmon house found there was a covenant banning him from parking his van outside his new home.
So, what can be done? I’d advise against buying a leasehold house and would suggest flat buyers read their lease very carefully. Looking forward, I predict a raft of professional negligence cases against conveyancers who failed to alert buyers to the implications of leasehold. Anyone needing advice should head to the National Leasehold Campaign Facebook group or Leaseholdknowledge.com.
Emma Lunn is a freelance personal finance journalist