How to purchase leasehold and keep away from ‘fleecehold’ | USAEMALL.com

Ordinary people hit with enormous, life-changing bills; families stuck in unsafe buildings; homeowners forced to pay rip-off charges to faceless management companies — the steady drumbeat of leasehold scandal stories is alarming if, like me, you are planning to buy a flat in London.

Leasehold is a curiously English type of home ownership, where buyers purchase the right to live in a home, typically a flat, for a set amount of years, rather than the property itself. Usually, they also pay a ground rent, and a “service charge” covering the maintenance of the property. Detractors describe the system as a feudal relic; overly complicated and riddled with scope for abuse.

Sebastian O’Kelly, chief executive of the campaign group Leasehold Knowledge Partnership, says the problem is “private equity punters” who have found ways to exploit the system. Many believe “fleecehold” needs to be abolished.

Reform has been on the horizon for years, but has been repeatedly delayed — most recently, a law rushed through parliament in the final days of the last government was found to have “flaws”, according to ministers. While the government announced that one measure, eliminating the two-year wait to extend a lease after purchasing a flat, took effect on Wednesday, consultations on how to implement some other parts of the new law are expected this year.

In the meantime, what do I do? I’m preparing to move and, although I have owned a leasehold flat with no problems, I am acutely aware of what could go wrong.

“I just wouldn’t go near any of that leasehold stuff,” a friend advised me as we discussed it after dinner. I looked around his elegant London house and thought: easy for you to say.

Some 4.8mn properties in England are leasehold — just under a fifth of the total. In London, which has a large number of flats, the proportion rises to one in three. Avoiding leasehold implies a big sacrifice in the location and type of property I can buy.

“It’s not a toxic system per se,” says Mark Chick, senior partner at law firm Bishop & Sewell and a director of the Association of Leasehold Enfranchisement Practitioners. “The system can be navigated successfully. It is just a system where there have been historic abuses or individual examples of poor behaviour,” he adds.

“As a species, it works,” says Chick. “There are plenty of people who do own flats and don’t have problems.”

So if you are buying leasehold, how can you better protect yourself from the exploitative and neglectful?

The first step is to be clear on what it is you’re buying. When you purchase any apartment anywhere, you usually sign up to pay a share of the cost of running and maintaining the building, whatever that may be — but unlike with a house, you don’t have total control over these. On top of that, comes the leasehold system.

Charley Lowe, solicitor at law firm Wedlake Bell, says misunderstandings are common. “I have many clients who come to me when buying a flat and when I refer to ‘the lease’ they say ‘hang on, I’m not renting it, I’m buying it’, so there is certainly a lack of understanding generally,” she says. 

Some leasehold apartments have an arrangement where the residents have control of the service charge, rather than a freeholder. Other flats are sold as “share of freehold”, where the building is jointly owned. Both are seen as superior, as it means the apartment owners have greater control over costs, although the responsibility can be time consuming and disagreements absolutely can occur.

When searching for a flat, getting your hands on all the relevant information is often not as easy as you might think: many online listings don’t specify the service charge or ground rent, or even how long is left on the lease (renewing can be costly, especially once it falls below 80 years). Estate agents will provide these details when asked, but ask for more and it can get tricky.

During my own search, I asked one agent for a copy of the lease — essentially the contract that I would be signing, but was told the seller didn’t want to “dig it out”. (You can get it from the Land Registry, by post, for a small fee.)

Matt Lewis, consultant solicitor at Commonhold and Leasehold Experts, says that a problem with the conveyancing system in England and Wales — and this goes for freehold too — is that “you only get pertinent information later on, by which point you’ve spent considerable sums of money on legal services and perhaps committed to other costs such as surveys”.

There are some questions you can ask up front, however (see box)

O’Kelly says a good solicitor is important. “Choose one carefully and pay them properly . . . You [should not] use a ‘factory’ conveyancing legal service when buying a flat — and certainly never employ a lawyer recommended by an estate agent or a developer.”

The most well-known problem with leasehold flats is cladding, which was thrown into the limelight by the Grenfell Tower fire in 2017. The disaster led to much stricter rules on fire safety in blocks of flats, contained in the 2022 Building Safety Act.

The first thing to note is that it’s not just cladding — buildings are now thoroughly assessed for fire risk and problems must be rectified. Common problem areas to look out for are inadequate fire-stopping (gaps in walls to stop fires spreading), flammable balcony materials and insufficiently fire-resistant doors, says Lewis.

Getting these fixed is often expensive and figuring out who will pay for it is crucial. Lewis described the law in this area as “particularly complex and contains a fair amount of traps for the unwary”, so get specialist advice if you want to buy a flat in this situation.

Everyone I spoke to for this article said it was important to find out who the managing agent and freeholder are, and research them online.

“If you end up looking at a property that has one of those notorious landlords, that’s probably a red flag and you’re going to want to walk away,” says one solicitor who declined to be named.

O’Kelly says to look at press coverage, court reports, Companies House and the website of his own Leasehold Knowledge Partnership. “The really big landlords, all of them are abusing the system, in my view,” he says.

Managing agents should also be checked. There is no formal regulation of these companies, but being accredited to trade body The Property Institute is a good sign.

What if, after you purchase, something goes wrong, or you suspect malpractice?

First, scrutinise your annual service charge accounts — ask specific questions that signal “I see what you’re doing there”, says Lowe. Freeholders and managing agents are legally required to account for every penny of service charge money — you can ask to see receipts.

An ombudsman is available for low-level complaints, but more serious ones require legal action. And here, the advice is to tread carefully. Legal action would probably have to be disclosed to a buyer, making it harder to move on.

Freeholders can in some cases claim legal costs from leaseholders — if you sue them, you could end up paying their legal bill as well as your own — though this is due to change under the reforms. Get legal advice before withholding your service charge, as this may put you in breach of the lease and could mean you end up paying the freeholder’s legal fees personally, or even have your property repossessed.

If enough of your neighbours are also aggrieved, in some cases you can apply for the “right to manage”, whereby leaseholders take control of block management and the service charge.

But in the end, all property ownership carries risk, as does renting. What’s important is flushing out the risks, and weighing them against a property’s price, location, size and everything else we consider when buying ourselves a home. As Chick puts it: “Nothing can ever be risk-free, but you can go into it with your eyes open.”