Leasehold Question

[Fluke]

I'm thinking of moving this year to a new build leasehold apartment. I still have the mental scars of owning a flat back in my 20s but times have moved on - haven't they? I would put this question to the conveyancer but I'm not at that stage yet, does anyone know if it is possible to insert a clause into a leasehold agreement that prevents management charges being raised for say the first 5 years, or if not, that prevents them being put up by no more than a reasonable amount annually? Inflation? Or something at least that avoids the nightmarish situation where charges can be hiked willy-nilly without any controls in place to prevent it.

Would it be reasonable to ask the developer for a copy of the leasehold agreement ahead of purchasing?

In fact any advice at all regarding new builds and leaseholds would be gratefully received.

Thanks.

[supremetwo]

Would it be reasonable to ask the developer for a copy of the leasehold agreement ahead of purchasing?

In fact any advice at all regarding new builds and leaseholds would be gratefully received.

Thanks.

It is essential - reasonable does not even come into it.

https://www.lawyer-monthly.com/2018/03/ ... t-clauses/

a recent trend in new leases, whereby developers propose ground rent escalation at RPI clauses, resulting in a ground rent increase rate that can render some properties unsalable and stress that such clauses can be re-negotiated.
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Anyone proposing to become a tenant under a new lease should therefore be willing to challenge an RPI-linked ground rent clause. Whereas at the market’s height a few years ago a developer might have rigidly insisted on retaining such a clause – safe in the knowledge that another buyer who would accept it was likely to be waiting in the wings – the subtle shift of power to buyers since then means that there is nothing to be lost from a challenge and, in an environment where developers are under increasing public pressure to grant fair leases and to do away with RPI, everything to be won.

[production100]

It is essential that you read the lease carefully before committing to a purchase.

You, for example, need to read the lease to watch out for clauses stating that a percentage of the sale price when you come to sell the property is to be paid to the lessor. This seems to be in many leases - even though it seems odd - and you need to be aware of how much you could have to hand over when you come to resell it. It also needs to detail who is responsible for what. i.e. building maintenance - which aspects are their responsibility and which are yours. (if they fail to adequately paint the outside are you then responsible for replacement windows)…

P100

[Mike88]

I think it is more important to establish who owns the freehold and how much is in the pot for future maintenance. If the freeholders are the flat owners it is important to establish who is and is not paying. Many flats around here have freehold owners who simply refuse to pay the annual management charge or are in arrears and the paying owners feel there is nothing practical they can do about it short of taking legal action which they do not have the funds to pursue.

Ah! Sorry just realised it is a new build.

[Abadi]

You, for example, need to read the lease to watch out for clauses stating that a percentage of the sale price when you come to sell the property is to be paid to the lessor.

Never seen that before, can you show an example ?

[GoSeigen]

You, for example, need to read the lease to watch out for clauses stating that a percentage of the sale price when you come to sell the property is to be paid to the lessor.

Never seen that before, can you show an example ?

Is it not common for retirement homes, static caravans and such like?


GS

[JonE]

You, for example, need to read the lease to watch out for clauses stating that a percentage of the sale price when you come to sell the property is to be paid to the lessor.

Never seen that before, can you show an example ?

Usually (possibly always) found on purpose-built retirement properties. Consent to assign the lease is always required (partly to enforce age restrictions on assignee) with 1% payable to freeholder and another 1% payable to the Service Charge Account in the examples I've examined. It is normally the case that buyers of such properties don't anticipate selling it themselves so aren't bothered about that and their executors just have to lump it.

Of course one should examine the lease when purchasing - it is, after all, precisely the lease that one is actually purchasing!

Cheers!

[production100]

Never seen that before, can you show an example ?

We had a percentage to pay when my father in laws leasehold property was sold. Cannot remember the percentage now, but think from memory it was 5%. It happens to have been a property for over 50 year olds, but I have seen articles since that new builds (not retirement homes) sometimes have a similar clause. - I think it was reported by the BBC.

- which was why I raised it as a possible concern.

P100

[Clitheroekid]

... does anyone know if it is possible to insert a clause into a leasehold agreement that prevents management charges being raised for say the first 5 years, or if not, that prevents them being put up by no more than a reasonable amount annually? Inflation?

The short answer is no. On a new development the lease will have been carefully drafted by the developer's solicitor (I know, I’ve done it!) and it's a cardinal rule that all the leases on the development must be the same. It's simply not practicable to negotiate individual leases, and that applies even more so to the service charge mechanism.

It would also be totally unacceptable on any development to have no service charge for the first 5 years. Who is going to pay for the expenditure that's incurred looking after the development during that period?

The only way it might be feasible would be to include 5 years' estimated service charges in the sale price, but this would push the price up significantly, deterring prospective buyers (who usually only look at the headline price).

Likewise, it's impossible to fix service charges to the RPI or any other index. By the very nature of the charge it will vary from year to year according to what work's needed.

Or something at least that avoids the nightmarish situation where charges can be hiked willy-nilly without any controls in place to prevent it.

There are various mechanisms in place that limit service charges. If, as is often the case, the residents own or take over the management company then that's probably the best protection. But even if they don't all service charges are subject to a test of reasonableness and can be challenged by applying to a Tribunal.

Would it be reasonable to ask the developer for a copy of the leasehold agreement ahead of purchasing?

Yes. However, most lay people would have extreme difficulty reading and comprehending a typical lease, which often nowadays run to 50 pages or more of legal jargon.

What I would say is that if you decide to buy then it's important to employ a competent and independent solicitor. If you use the solicitor recommended by the developer it's often a recipe for disaster. They will be far more bothered about keeping the developer happy than you, as the developer will feed them fees on a regular basis, whereas you're just a one-off. Consequently, they will fail to advise you about problems with the lease or bury the advice in a 10 page letter, knowing you probably won't read it.

Neither will they be willing to negotiate the terms of the sale contract - basically they'll probably just say "Here's the contract, sign in the box".

Also, do try to ensure that you employ a solicitor as such. Most conveyancing nowadays is carried out by paralegals, to save money. Some of them are competent, but there are far more who are clueless and have very little, if any knowledge of leasehold law. In theory they can seek advice from a solicitor, but in practice they often don't.

There are a lot of scare stories about leases, and there are certainly serious problems with some of them. However, you need to bear in mind that there are millions of people who live in flats quite happily, and with no serious problems at all. Provided the developer is reputable and you have good advice there's no reason it shouldn't work out fine.

[Hariseldon58]

I live in an area where there a lot of flats and worked part time for a while in the industry and have owned a few properties with managing agents.

For most larger developments the agent is often a local company and they manage dozens of properties, there are a finite number of such companies. Some are very good , some not so efficient, generally they are all pretty reasonable.

If you have a chat with a few letting agents then you will be to get some feedback for your potential managing agent.

If you buy a flat with a share of the freehold then you and your fellow leaseholders directly control the appointment of the managing agent. Some developments will manage the development themselves this can work very well but can go wrong when a small subset of leaseholders let the power go to their heads..

Do your research, make sure you understand the terms of the lease, find out who the managing agent will be...go and visit their office, make an assessment of the individuals and how they are working, ask what other buildings they manage, knock on a couple of doors... if there are problems then other tenants will tell you.

[Fluke]

The short answer is no. On a new development the lease will have been carefully drafted by the developer's solicitor (I know, I’ve done it!) and it's a cardinal rule that all the leases on the development must be the same. It's simply not practicable to negotiate individual leases, and that applies even more so to the service charge mechanism.

Thanks Clithero that's answered that one.

Or It would also be totally unacceptable on any development to have no service charge for the first 5 years. Who is going to pay for the expenditure that's incurred looking after the development during that period?

Just to clarify, I was suggesting a clause that prevented the service charge being raised for the first 5 years, not no charge at all. The rationale being that it's a brand new development, what work would need to be done that hadn't been thought of when the charge was set in the first place? Perhaps this is answered in your point about 'reasonableness'.

..most lay people would have extreme difficulty reading and comprehending a typical lease, which often nowadays run to 50 pages or more of legal jargon.

What I would say is that if you decide to buy then it's important to employ a competent and independent solicitor. If you use the solicitor recommended by the developer it's often a recipe for disaster. They will be far more bothered about keeping the developer happy than you, as the developer will feed them fees on a regular basis, whereas you're just a one-off. Consequently, they will fail to advise you about problems with the lease or bury the advice in a 10 page letter, knowing you probably won't read it.

Neither will they be willing to negotiate the terms of the sale contract - basically they'll probably just say "Here's the contract, sign in the box".

Also, do try to ensure that you employ a solicitor as such. Most conveyancing nowadays is carried out by paralegals, to save money. Some of them are competent, but there are far more who are clueless and have very little, if any knowledge of leasehold law. In theory they can seek advice from a solicitor, but in practice they often don't.

Sound advice there, thank you.

There are a lot of scare stories about leases, and there are certainly serious problems with some of them. However, you need to bear in mind that there are millions of people who live in flats quite happily, and with no serious problems at all. Provided the developer is reputable and you have good advice there's no reason it shouldn't work out fine.

Yes this does help put my mind at rest actually. It is a reputable developer - Hill, the development is a whole new area of Cambridge and is being touted as an 'exemplar for 21st century living' it's being done in partnership with the university and will provide a mix of new key worker homes, school, commercial and research facilities as well as private houses and apartments.

https://www.athena-cambridge.co.uk - in case you're interested.

[Fluke]

a recent trend in new leases, whereby developers propose ground rent escalation at RPI clauses, resulting in a ground rent increase rate that can render some properties unsalable and stress that such clauses can be re-negotiated.

I think I read somewhere in the blurb that there was no ground rent, but I"m pretty sure there was mention of the service charge going up at RPI + 1% - or something. I'll raise this point with the solicitor.

We had a percentage to pay when my father in laws leasehold property was sold. Cannot remember the percentage now, but think from memory it was 5%. It happens to have been a property for over 50 year olds, but I have seen articles since that new builds (not retirement homes) sometimes have a similar clause. - I think it was reported by the BBC.

Hopefully doesn't apply here but it's certainly something I'll ask the solicitor to check.

If you have a chat with a few letting agents then you will be to get some feedback for your potential managing agent.

Yes, I need to look into this, thanks.

[johnhemming]

I think it is much better to have a freeholder which is a management company owned by the leaseholders. All the risks of problems with leases tend to lie with the leaseholders.

I have two personal experiences with leased properties. One where the management company is owned by leaseholders and that works reasonably well. The other is where it was at one stage owned by a local authority. That's OK if at times a bit expensive. I have done quite a bit of casework from time to time on leasehold properties and I would avoid having a separate freeholder.

[richlist]

Every lease and every development is different.

I have flats where there is a separate freeholder and that works well....£15pa ground rent fixed for 125 years. The managing agents are employed by a committee of the leaseholders as required by the lease which all works well with service charges currently at £56 pcm.

[scrumpyjack]

I would have thought you should ask for a summary of the lease provisions before you even think about an offer, and obviously have it checked out carefully before going through with the purchase.

If it is a new build and they can't give you a summary of the lease terms, that should raise a red flag!

[johnhemming]

Every lease and every development is different.

I have flats where there is a separate freeholder and that works well....£15pa ground rent fixed for 125 years. The managing agents are employed by a committee of the leaseholders as required by the lease which all works well with service charges currently at £56 pcm.

I should have written more detail. It is the management of the freehold that is key. If there is a freeholder who merely collects a fixed ground rent then that does not necessarily cause a problem.

[pochisoldi]

I would have thought you should ask for a summary of the lease provisions before you even think about an offer, and obviously have it checked out carefully before going through with the purchase.

If it is a new build and they can't give you a summary of the lease terms, that should raise a red flag!

"Summary"? Are you kidding?

As the first lessee your conveyancer will need a full copy of the draft lease in order to do the purchaser's due diligence on your behalf.

Where the lease is already in existence, a complete copy (provided by the vendor) is required for the same reason.

The lease forms part and parcel of the transaction. You don't pay £600+ in legal costs just to sign it without getting it checked and having certainty over what you're binding yourself to.

Pochisoldi

[Itsallaguess]

I would have thought you should ask for a summary of the lease provisions before you even think about an offer, and obviously have it checked out carefully before going through with the purchase.

If it is a new build and they can't give you a summary of the lease terms, that should raise a red flag!

"Summary"? Are you kidding?

As the first lessee your conveyancer will need a full copy of the draft lease in order to do the purchaser's due diligence on your behalf.

Where the lease is already in existence, a complete copy (provided by the vendor) is required for the same reason.

The lease forms part and parcel of the transaction. You don't pay £600+ in legal costs just to sign it without getting it checked and having certainty over what you're binding yourself to.

To be fair, I don't think that anything you've said there goes against what pochisoldi was actually suggesting.....

Pochisoldi was referring to a summary of the lease provisions only in terms of looking at it 'before even thinking about an offer', and then, when pochisoldi said 'and obviously have it checked out carefully before going through with the purchase', I took that to mean having the complete lease provision checked out carefully, and not just the earlier summary....

Wouldn't that be considered a relatively normal course of events?

I suppose we could have read the 'and obviously have it checked out carefully before going through with the purchase' to still be talking about the summary, but I took it to mean the full and complete lease provision at that stage...

Cheers,

Itsallaguess

[Itsallaguess]

It's been kindly pointed out to me that in my earlier reply on this thread, I had mixed up the names of the two respondents, so apologies for that.

I hope my main point still stands that I don't think there was too much wrong with scrumpyjack's view on this.

Cheers,

Itsallaguess