The other week I read a comment from someone who said a leasehold property is a snare for the uneducated. And now looking back in hindsight, I couldn’t agree more.
After my arduous experience of owning a leasehold property I have been sharing lots of posts surrounding this topic to educate people, both young and old who are looking at acquiring a leasehold property. I feel like this is one of the most unreported areas in property.
Quite frankly, if I knew what I did now I would never buy a leasehold property. Stat. As you can see from the photo above, this was the level of joy I felt when I was saying sayonara to my flat. Let’s get started with the leasehold basics.
What Is A Leasehold?
Leasehold properties are usually flats, but they can be houses too. You buy a lease agreement and the freeholder owns the property, and the land. You don’t own a brick. As a leaseholder, you have a lease that relates to the property which lays out the rules and regulations for your property and what you can, and can’t do to it. It also means that you pay an annual ground rent charge, and a service charge which goes towards things such as maintenance, buildings insurance and cleaning of the property. Although, that is not an exhaustive list.
Buying A Leasehold Property
When I bought my first flat 5 years ago, I was slightly naive, and I had no idea how long the purchase of a leasehold property took to go through. I was buying a flat that was a new development, which indeed came with its own problems, and delays.
As a first time buyer I had NO clue about leases and what to look for in them, and rather naively I put my full trust into my solicitors at the time to bring up anything that could have been an issue. I wish I had known and cared to google things during this time, because it could save you a lot of money, time and your sanity.
The lease should be studied with a fine tooth comb during the purchase process. During this time, there was an issue that was brought up where the solicitor mentioned ground rent should normally be £50 per annum, but the freeholder was stating it would be £250 per annum. I was so desperate for the purchase to go through that I okayed it. After all, £250 a year wasn’t much, right? (More on this later).
There are many other things that are generally needed by solicitors for a leasehold purchase including an LPE1, management pack which includes information on service charges, and accounts to date. Health and safety, fire risk assessment and asbestos surveys need to be carried out, especially on older properties. Although, these things are NOT mandatory, but some solicitors and purchasers will push for this.
5 months later, and the purchase finally went through. Then the real fun and games began as a leaseholder.
Rising Service Charges
I suppose you could say that I was completely oblivious to the service charges initially. It was a further 12 months before the sale of the other 4 flats went through in the property and service charges really didn’t start kicking in until this time.
I had the luxury, or the lure that everything was fine. I had never paid much attention to the service charges as they don’t give an exact figure in the lease, but they do state that it can be increased to the rate of RPI at the time.
Secondly, the freeholder wasn’t really a freeholder. Her business partner, the supposed ‘experienced developer’ had done a runner to the other side of the world with seemingly tens of thousands of pounds worth of money from budding property investors who thought this man was the real deal. What was left was a ‘freeholder’ who openly shared she had no experience in it and it was months before she started working out our service charges.
Even then, there was never a service. For those 3 years, service charges were never more than £500 a year and it always included buildings insurance split between the other flats. Towards the end of her reign she kept putting in costs for things that weren’t required and trying to charge a management fee, what management?
I will never forget the last email before the new freeholder took over where she said ‘There will be undoubtedly increased costs for doing this, but I trust you won’t have an issue in paying the increased management fees to them’. GULP. I literally felt sick, surely it couldn’t get that bad?
Money Grabbing Freeholders
The new freeholder took over, who was in fact an established freeholder and within weeks the new revised costs came through.
We were used to paying in arrears and suddenly a full 12 months was being charged up front with payment due within a week, and no option to pay monthly. Thus, they were backdating 6 months whilst the other freeholder was still acting, although no work was done during that time.
The complication was that often with a leasehold property you are not dealing with one person. We have a ‘freeholder‘ who took our ground rent, they would also be the point of call for lease changes, we then had a managing agent who was responsible for the maintenance and collecting the service charges. Too many cooks spoils the broth? Although, this is a very similar picture for many leasehold owners in the UK.
The first revised service charge bill went out and they were demanding everyone to pay towards a £3,000 communal electricity bill which the initial developer had never paid dating back to 2017. We ALL knew this, yet the managing agents were demanding the money and would not investigate this. They had not one ounce of care for the freeholders, and it was criminal. We all challenged the bill, and eventually we got it written off because it wasn’t any of our liabilities. But, had we not done that, we would have had to pay it and the late demand charges would have kept coming.
The worst part was that when you had a query about a bill, no one would ever talk to you. They are simply interested in taking your money, and nothing else. We had paid for cleaning for the entire 2021 period, and no one had even been to clean. The itemised service charge list is extensive, and ridiculous. They account for everything, down to the last stamp, despite never asking if you would prefer paperless billing.
They can also add additional items on on top of your service charge throughout the year that you won’t have accounted for. As I was leaving, they were trying to invoice us for boxing in around the water meters which was an additional £500 each.
Everyone used to feel sick to their stomach when the latest invoice came through the post because you never knew what it was going to be. Service charges are uncapped, and the most criminal thing about owning a leasehold. Leasehold properties are often the only option for first time, and single buyers as they are generally the cheapest. But with rising service charges you end up paying so much more than you would with a small house.
When service charges increase you have no choice but to pay them, everyone talks about the rising cost of living. But no one talks about the unreported issue of rising service charges, you are constantly at the hands of god. You are pretty much the tenant of your own property.
Selling A Leasehold
If I thought all of the above was bad, I hadn’t sold the god damn thing yet. Selling a leasehold property is in my opinion one of the worst and anxiety inducing things I have ever done. I felt like every time I had an email from my solicitor I didn’t know from which way what would be happening next, and I felt entrapped like I would never be able to sell my flat.
In total it cost around £5,000 to sell my flat from flat related fees, but it could have easily been £20k plus, had things been different.
Oh, the LPE1 form. Whilst legally they state that an LPE1 form, or management pack isn’t legally required, generally a sale will not go through without it because you need full details of the service charges, accounts etc before purchasing. This has to be filled in by the freeholder or managing agent as it’s a legally binding document.
In total it cost me a whopping £840 for 2 sides of an A4 sheet to be filled in. I paid £240 to the managing agent, but because they couldn’t fill in 2 of the questions, the freeholder had to do those. For those 2 remaining questions it cost me £600. The form was back over within minutes. It was absolute daylight robbery, but all I could do was pay for it and get it over the line.
Freeholders are unregulated, so they can charge whatever they like, and if you don’t like it, well, welcome to being a leaseholder.
Deed of Variation
There were so many twists and turns during the sale to mention, but the last one really caught me by surprise.
3 months into the process I was only being told that the purchasers lender would not lend because the ground rent was £250 (outside of London). To get past this, the lender wanted a deed of variation. I had NO idea what this was, or even that there was an issue with ground rent levels.
Ground rent exceeding £250 becomes an assured tenancy agreement, this means that if the owner was to fall into ground rent arrears, then the freeholder could take possession of the property, leaving the lender with nothing to reclaim their debts.
Despite the new ground rent ban coming into play in June 2022, this is only on new leases and does not currently apply to old leases. Even if ground rent levels are currently below this figure, pay attention to the ground rent terms in your lease, do they double or increase with the rate of RPI? This is becoming a frequent issue with lenders at the moment and many are sticking their heels in about ground rent, no matter what the amount.
So, I went back off to the freeholder to ask about the costs of a deed of variation. With the initial enquiry, legal work and premium that would be payable, it could be anywhere between 10k-14k for this to be done.
In that split second I honestly thought I would never, ever be able to leave this flat. It was sickening, they could charge what they liked and the freeholder could not have cared less. This is very much a real situation and one that thousands of people in the National Leasehold Campaign Facebook group are going through.
I could never have paid for that, and my only option was to try and sell to a cash buyer (although it could have still become an issue with future saleability) or offer an indemnity policy, which we did. I waited THREE weeks to hear if it was accepted by the purchasers lender and it was the most excruciating wait on the precipice.
By some stoke of luck, I genuinely think someone was watching over me, the indemnity policy was accepted and we could proceed with the sale. It cost me £50.
I did also have to leave a further £250 as a ‘retainer’ with my solicitors in case the new owner had any extra fees not accounted for on the service charges. I said yes because I was past the point of caring, I was passing my £100s out like £1 coins at this point.
Why I Would Never Buy A Leasehold Property Again
There is a constant stream of people asking for advice on purchasing leasehold properties on Facebook and it is always met with comments such as RUN, buy a freehold, and never buy a leasehold property. And I stand with them.
It turned out to be a good investment for me. In the end. But it could have ended up so much worse. The rising living costs AND service charges were a worry for what was only a 1 bed property, and I never knew where I stood. The fear of letters and emails was horrendous, and being able to budget was somewhat of a logistical nightmare.
Towards the end, the flat never felt like mine. I was living among airbnb guests, I felt like I had to always answer to someone, and it honestly felt like it could be plucked away from me at anytime.
In fact, having been both a renter, and a leasehold owner. Being a renter far outwins being a leaseholder as you have no liability. Freeholders will continue to take leaseholders for their money until real work has been done in parliament. If you, or someone you know or care about is looking to buy a leasehold property, please tell them to read this. I would never buy a leasehold property again, and it’s not something I would ever, openly recommend to my worst enemy. What’s your experience with leasehold properties?
Before You Go…
If you are seriously considering buying a leasehold property, I would encourage you to look further at the costs involved in owning a flat. In this article I detail all the potential costs involved in owning a flat, and those if you were to sell…