Flat owners warned against informal lease extensions
Owners – and buyers – of leasehold properties need to watch out for unscrupulous freeholders persuading them to make an informal arrangement to extend their leases, an expert has warned.
Louie Burns, managing director of Leasehold Solutions, says many of the UK’s 4.1 million leasehold flat owners are being duped into poor value informal deals by predatory freeholders.
Mr Burns says that while leaseholders may be saving money paid upfront, the long-term costs of extending a lease informally can be huge.
He says: “I call these informal lease extensions ‘Trojan horse offers’; they look like a gift but when you look inside, the details can be catastrophic.
“Freeholders often claim that an informal lease extension will save the leaseholder money, but by inserting clauses such as onerous ground rent schedules (which often double every decade), increased licence fees and service charges, and delaying tactics, not to mention the cost of the lease extension itself, leaseholders often end up paying £10,000s, if not £100,000s, more over the years than if they’d opted for the legal, statutory route.”
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What rights do leaseholders have?
Leaseholders have a legal right to extend their lease by an extra 90 years and reduce the ground rent to zero if they have owned their flat for more than two years, while the law provides compensation to the freeholder when the lease is extended.
However, informal agreements are not protected by the law and freeholders can make any changes they want to the terms of the lease, such as only extending the lease back up to 99 years, which means the leaseholder may have to consider extending again and paying for a new lease in the future.
Unscrupulous freeholders will also use an informal arrangement to add, for instance, an index-linked ground rent, which doubles every five or 10 years, or a clause saying that the legal fees of the freeholder must be covered by the leaseholder during any court dispute.
If you’ve got a gripe, or just want more information on your rights, visit the Leasehold Advisory Service’s website.
‘The devil is very much in the detail’
Mr Burns adds: “With recent changes in legislation, such as the Disclosures Act 2014 and Consumer Rights Act 2015, the noose is tightening on the loop holes that enable informal lease arrangements, but many flat owners are still unaware of their rights and, when it comes to leasehold law, the devil is very much in the detail.
“I see so many flat owners’ sales fall through because someone has not understood the implications of the informal lease extension offered, and flats can even become unsellable due to oppressive ground rent clauses and service charges resulting from informal arrangements.”
The right to hold or use assets (generally property, but also vehicles) for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract. Leasehold ownership of a residential property is simply a long tenancy, the right to occupation and use of the flat for a specified period – the ‘term’ of the lease, which is fixed at the beginning and so decreases in length year by year and the property can be bought and sold during that term. When new, leases are for 99 or 125 years until its eventual expiry, whereupon ownership of the property reverts to the landlord.