….. About buying or owning leasehold / commonhold.

House buying in the 21st Century is even more complicated than it used to be many years ago, because it’s no longer as simple as buying a house and being responsible for the land it’s built on.

Instead, you are faced with the prospect of your property being associated with something called ‘Service Charges’.

For those of you discovering this post when searching for “things to know about leasehold / commonhold living”. We recommend that you take a moment to take in what we are about to highlight.

The reason for this is because thousands (and we mean thousands) of homeowners are suffering at the hands of property management companies, who demand excessive service charges for little work, whilst there is a plethora of hidden fees that you’ll only discover when it’s too late.

TTAS want’s to promote awareness of the pit-falls of leasehold/commonhold living in an attempt to make developers and councils change the way they build properties.

As the Government want to “kick start” the housing sector and banks once again being prepared to help ‘first time buyers’. We feel it is essential for the truth to known about owning a leasehold / commonhold property.

The risks of buying a new build property

Many would assume that purchasing a new build property will be a lot less hassle free than buying one that is many years old, but new build properties come with their own risks and that is in the form of service charges and property management fees.

Circa 2000, local council authorities have been granting planning permission to developers on the basis of a Section 106 agreement.

Section 106 agreements help to ensure that not only do homes get built, but there is also an investment to enhance the area the development is built in and that is in the form of an investment by the builders to construct schools, a local pub or community centre and shops.

All of this comes at a cost, because it appears that the local council don’t want to be responsible for the upkeep of the new development (particularly the large sprawling ones) and therefore the developer ‘sweetens’ the council by appointing a management company to look after common areas.

This then means that all homeowners (leasehold/freehold) have to pay a yearly fee for the upkeep.

Therefore, as a home owner you end up paying your council tax and a service charge (and for leaseholders, this service charge can exceed the council tax!) – for pretty much the same thing, with the exception that the Council do much less for the council tax you pay, compared to what owners of older properties do.

Beware of mis-selling by developers

Still interested in buying a new build property having read the above?

If so, the next step is to beware of mis-selling by the sales people within the developers site sales office.

You may go into the office armed with the information you’ve found on TTAS, but you must be prepared for the sales staff to try and dismiss these facts, to ensure that you buy a property.

If you confront the sales people and push for answers in regards to whether there is yearly service charge and if so, who the property managing agent is and what the cost is. Be warned that they will tell you that the yearly service charge is very reasonable (for leasehold around £600 a year and for commonhold around £120 per year).

Although, they won’t be very forthcoming with who the managing agent is and will advise that only when you commence the legal process to buy the property, that this will be known.

At this point, this is an outright lie.

The developer will have already agreed who the managing agent is and if the development has many completed ‘Phases’ – the agent will already be in place and allegedly providing services.

Our recommendation for any prospective buyer who faces this situation would be to turn round and walk away from the sales office.

Even if your heart may be ruling your head, it is imperative that you stand your ground and walk away because in the long term you will benefit. You may even want to consider that the savings you make on buying X property, can be added to the mortgage for you to buy a more expensive property.

The hidden charges if you already own your property

You already own your leasehold / commonhold property and want to make improvements such as have a conservatory built or to change your mortgage provider?

Be prepared for hidden charges that you’ll be forced to pay in the form of ‘Administration Charges’.

Yes, that’s right – if you decide to change your mortgage provider or add your partner to the agreement, your managing agent will demand that you update them with this information and you will be faced with charges between £80-£200!.

These type of charges will also be applicable if you want to have a conservatory built or external changes. You have to ask permission to make changes to your own property that is on your own land and even though the managing agent doesn’t have a responsibility to your home – they still hold all the power as to whether you can or can’t make these changes.

Those of you that have bought leasehold or freehold properties to rent out also face the prospect of paying a ‘Sub-let’ fee.

These fees are payable when a tenant moves in/out and/or every six months to ensure that the management company are kept informed of who the tenant is. Applicable even if the same tenant lives there for years!

Once again, caution is urged when buying or owning a leasehold / commonhold property because there will be many companies associated with your property that will exploit you.

Charges you’ll face when you come to sell your property

We then move onto the charges home owners face when they’ve been fortunate to sell their property.

You may think that the only charges you’ll be faced with will be the estate agent fees and moving costs, but you will be very very wrong.

Once again, the property management company and landlords are there to exploit you, because you have no other option than to pay for a ‘Leasehold Information Pack’ (or something to this effect), which basically confirms to your solicitor that your account is up to date.

You’ll need to pay for two of these, because if your landlord are a different company to your property management company, they’ll also request you to pay for one from them.

Meaning that you’ll end up paying around £500-£600 to these companies to simply tell your solicitor that your account is clear, even if you have invoices and receipts to confirm this yourself!

Your lease will not advise you of these fees and only when you come to sell the property will you become aware of them.

Therefore, it’s imperative that you budget for these costs.

Retirement leasehold hidden fees and clauses

Retirement leasehold is a completely different ball game, compared to regular leasehold living.

Most people that sell a retirement leasehold property will be family members who have inherited the property from a loved one.

When the property was first purchased, it’s likely that the buyer would have agreed to terms in their lease that are unreasonable, but would have been accepted due to failings by either their solicitor or for misunderstanding the lease.

These terms that may have nonchalantly been agreed to include:

• Exit Fees
  This is when a percentage of the property sell (usually 1%) is paid to the freeholder for no apparent reason.
• Contingency Fees
  These fees can include a contribution to the development for future improvements.
• Exclusive Agent Rights
  Some people have reported that the freeholder / developer will state that they have exclusive agent rights when the property is marketed for sale.This can prevent you from selling the property with a local estate agent for up to three months.

Conclusion

We hope that this post goes some way to highlighting some of the pit-falls of modern day leasehold / commonhold living and that you are now armed with the basics facts, when considering buying or selling a property that has service charges associated with them.