Leasehold houses - in the news again

Many people buy a property on a long lease - typically a long residential lease will be 125 or 999 years long.  Leases are appropriate for use where the property is a flat in a block. The reason for using leases in this situation is to ensure that the landlord can enforce the positive maintenance obligations against all of the flat owners.

However, there have been many reports in recent years about the increasing tactic of developers to sell houses on long leases.  There is often little or no justification from a legal point of view to sell a house on a long lease. A person buying a house would expect to buy the freehold interest.

The problem for homeowners has been that leasehold houses can be difficult to sell.  Long leaseholders have a statutory right to extend their lease or buy the freehold once they have owned the property for two years. This is known as ‘enfranchisement’. However, there is a cost to the homeowner to do this as they have to pay the landlord a fee to extend their lease and many have found this cost to be prohibitively high. This has led to a government review of the sale of leasehold houses and reform is expected although it is not known when any changes to the law will be introduced.

A ‘double whammy’ for the homeowner is that the ground rent payable under the lease may also increase substantially as the years pass by. This is another factor which may make the property harder to sell or secure a mortgage on in the future.

A daily newspaper has recently reported that leasehold houses are still being sold in some areas of the country despite the backdrop of scandal and possible law reform.

It is vital for buyers to ensure that they take independent, specialist legal advice when they purchase a property. Developers often recommend a solicitor to act for a buyer – but buyers are advised to ‘shop around’ to ensue that they appoint a specialist lawyer who is going to act in the buyer’s best interests.

To discuss this or any other property related matter, contact us.