Look before you leap into leasehold...

The Government won’t sort out notorious abuses overnight. So beware, says Angela Epstein

WELCOME to limbo land — the undesirable place now occupied by countless home owners caught in the ey e of the leasehold scandal.

It’s where, thanks to random hikes in ground rent, thousands of properties are now potentially unsaleable.

Though the Government has promised to put an end to this abuse on future new-build homes, and to cut ground rents on new flats to as low as zero, this won’t happen overnight.

As well as escalating ground rent, there is the fear of unexpected maintenance costs. For example, contributions to the purchase of a new lift in a block of flats — even if your apartment is on the ground floor.

‘ When you go for a viewing, look at the state of common areas such as the entrance hall or gardens,’ says Danielle Clements, a property lawyer with Gorvins solicitors.

‘If it looks shabby, it could be that the landlord will do major works or decoration to bring the property up to standard. They will recoup such costs through the service charge.’

This means if you buy the property, you could receive a huge service charge invoice next year or the year after.

The varying cost of ground rent — the annual payment made by the buyer of the property to the leaseholder who owns the ground it is built on — is largely responsible for the current crisis.

‘It may be a ‘peppercorn amount — effectively nothing to pay — or a very large sum, with the possibility of future escalations,’ says Anthony Essien, the chief executive of LEASE, the Leasehold Advisory Service. ‘ In some cases the ground rent could double every ten years.’

To avoid getting caught out, read the lease carefully, or get a solicitor to help you.

‘If ground rent is payable, it’ll usually be spelt out in the first or second page,’ says Mr Essien. ‘Alternatively, it may be set out in a “schedule” towards the end of the lease.’

But unexpected costs don’t stop with ground rent. ‘In leasehold flats, which are usually on a shorter lease, in addition you will need to pay a service charge and potentially insurance rent [a contribution to buildings insurance put in place by the landlord],’ says Ms Clements.

These are the fees that owners pay to cover their share of the cost of maintaining the building and usually cover repairs and maintenance to shared areas and the outside of the building (such as the roof and drains), buildings insurance and freeholders’ administration or management charges.

They can also be used to pay for shared services, such as a caretaker or cleaners.

If work needed on the building looks likely to cost more than £250 per leaseholder, there should be a consultation procedure which starts with the service of a notice by the landlord.

If this has already taken place it ought to be disclosed as part of the sale or purchase process.

ANOTHER key point to remember is that as a leaseholder, you have to ask the freeholder’s permission if you want to make changes to the property, such as installing new windows or adding a conservatory (this is on top of planning permission) — something which can cost as much as £2,500.

‘Above all, go over the lease before exchanging contracts and make sure you get the right advice.’ says Mr Clements.

In limbo land, it really is a case of let the buyer beware.