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Given the recent press on leasehold property and new build developments, in particular the onerous Ground Rent or Estate Rent Charge provisions, it should come as no surprise that if you are considering purchasing a Leasehold Property (Flat or a House) that you should ensure that your Conveyancer fully investigates the agreements. It may come as a surprise to you that these kind of covenants or obligations to pay, are not only restricted to Leasehold property. Some Freehold Properties, particularly contained in a new build or nearly new build estates may also be subject to excessive administration charges.

There are in the region of 5 million leasehold titles registered in England and Wales. If you decide to purchase a Leasehold property you must consider that 100’s and 1000’s of incoming leaseholders are charged unreasonable and excessive fees. The Commonhold & Leasehold Reform Act (“the Act”) requires that administration charges for consents and providing information by or on behalf of the Landlord should be reasonable.

Leases (Leasehold) and Transfer Deeds (Freehold) are long and complicated documents containing countless clauses regarding the obligations of all parties. The leases of all flats should contain appropriate covenants by the tenant of each flat to contribute towards the repair, maintenance and insurance of the building. The leases should also grant and reserve all necessary rights and easements. They should not contain any unduly onerous obligations on the tenant. The Transfer Deeds should contain appropriate covenants for the benefit of the wider estate and also grant and reserve all necessary rights and easements. Again they should not contain any unduly onerous obligations on the Owner.

Sometimes a lease or transfer deed will contain a provision for an occasional increase of the ground rent, or estate rent charge. Provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable, then it will be UK Finance Mortgage Lender Compliant. If you consider any increase in the ground rent may materially affect the value of the property or is just absolutely unreasonable, you MUST not proceed with the purchase. E.g. If the Ground Rent doubles or trebles in a very short period of time. It is subjective and a lot depends on where the property is located.

However under the current legislation, any annual rent exceeding £250.00 is considered as an assured shorthold tenancy (“AST”), which means that you, as a leaseholder would not be a qualifying tenant for the purpose of the right of first refusal under the Landlord and Tenant Act 1954 and would therefore not be entitled to receive notice from the Freeholder in the event of a sale or participate in a vote amongst the other leaseholders on whether to accept such notice. Also, in the event of non-payment of rent under an AST where landlord seeks possession order, you would also lose your reliefs which you would normally be entitled to as a leaseholder and subsequently forfeit your lease.

Most lenders, would not accept such provision, as in the event of non-payment of rent, the Landlord could seek a mandatory possession order and there will be no possibility of relief for the lenders, and they would lose their security also. This means that many Lease’s require a Deed of Surrender and Re-Grant or Deed of Variation, the Landlord can charge excessive premiums for an amended lease along with administration fees and payment of their Solicitors costs.

You can apply to the First Tier Tribunal (Property Chamber – Residential Property) (“FTT”)  if you are either a leaseholder or freeholder and you pay a charge as long as you think either the charge is unreasonable, the standard of work is unsatisfactory or you do not think you should pay it at all.  You cannot apply to the FTT if you have already agreed to pay the charge, the dispute is already being dealt with or you pay a fixed charge. If you wish to apply to the First Tier Tribunal, you should be aware that it is not a quick process and the costs of doing so could be disproportionate to the amounts your Landlord is charging.

A First Tier Tribunal case, Spencer Wade v Orchidbase Ltd [2014] states that a reasonable amount should be paid for such items as a Deed of Covenant, in this case £300 was paid to the Landlord, the Court held that a reasonable amount would have been £80. The Landlord was ordered to refund the excess amount back to the leaseholder.

From 1 October 2014, all property management agents are required to be a member of one of three compulsory redress schemes.

The schemes are designed to ensure tenants and leaseholders have a straightforward option to hold their agents to account. The three compulsory schemes for letting and managing agents are:

  • The Property Ombudsman
  • Ombudsman Services: Property
  • The Property Redress Scheme

The schemes will offer independent investigation of complaints about hidden fees or poor service. You should also check to see if the Managing Agent is a member of the Association of Residential Managing Agents (“ARMA”). If they are, you can raise your concerns with them initially, if you are still unhappy you can follow their internal complaints procedure however you also have the right to complain to Independent Ombudsman.

If you are unhappy with the charges that are being made by your Landlord, you can take advice from the Leasehold Advisory Service.

If you are buying and selling a house and are looking for an experienced, full service conveyancing team to guide you through the process, give our Residential Property team a call on 0161 930 5151, e-mail or obtain a free quote using our conveyancing quote calculator.