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| Beware the 'cheaper' leasehold option that could cost more in the long run | Beware the 'cheaper' leasehold option that could cost more in the long run |
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| First-timer buyers desperate to scramble on to the property ladder should be wary of leasehold flats, as this form of "ownership" is no more than an extended rental that might seem cheaper, but can cost you dear in the end, experts warn. | First-timer buyers desperate to scramble on to the property ladder should be wary of leasehold flats, as this form of "ownership" is no more than an extended rental that might seem cheaper, but can cost you dear in the end, experts warn. |
| Around three million people in the UK – many first-time buyers – own leasehold flats, and this is set to rise as most new-build flats are sold leasehold. | Around three million people in the UK – many first-time buyers – own leasehold flats, and this is set to rise as most new-build flats are sold leasehold. |
| "Naive leaseholders buy a flat and think that – more or less – they have bought the equivalent of a freehold home," says Sebastian O'Kelly, spokesman for the Leasehold Knowledge Partnership. "In fact, they have bought a long-term rental, along with a load of neighbours in the same position." | "Naive leaseholders buy a flat and think that – more or less – they have bought the equivalent of a freehold home," says Sebastian O'Kelly, spokesman for the Leasehold Knowledge Partnership. "In fact, they have bought a long-term rental, along with a load of neighbours in the same position." |
| Contrary to many perceptions, the first-time buyer market is thriving, despite the heavy deposits now required. The latest figures from the Council of Mortgage Lenders show that mortgages for first-timers in November 2012 were up 8% on the previous month and 24% on November 2011. Meanwhile, the Halifax said the number of first-time housebuyers reached a five-year peak in 2012. | Contrary to many perceptions, the first-time buyer market is thriving, despite the heavy deposits now required. The latest figures from the Council of Mortgage Lenders show that mortgages for first-timers in November 2012 were up 8% on the previous month and 24% on November 2011. Meanwhile, the Halifax said the number of first-time housebuyers reached a five-year peak in 2012. |
| But those who have bought a leasehold will have merely purchased the right to live in a property for a set period – usually 99 or 125 years – rather than owning the land it stands on. The land is owned by a freeholder or landlord, who will charge a ground rent. | But those who have bought a leasehold will have merely purchased the right to live in a property for a set period – usually 99 or 125 years – rather than owning the land it stands on. The land is owned by a freeholder or landlord, who will charge a ground rent. |
| In most cases, the freeholder will employ a managing agent to maintain the communal parts of the building such as staircases, roofs and gardens, and ensure leaseholders stick to the lease's terms. | In most cases, the freeholder will employ a managing agent to maintain the communal parts of the building such as staircases, roofs and gardens, and ensure leaseholders stick to the lease's terms. |
| However, disputes between leaseholders and freeholders, or their agents, are growing. The Leasehold Advisory Service , dealt with around 41,000 inquiries in the financial year 2011-12, while its website had more than 400,000 visitors – up 21% from the previous year. Inquiries by email and personal appointment grew by 13%. | However, disputes between leaseholders and freeholders, or their agents, are growing. The Leasehold Advisory Service , dealt with around 41,000 inquiries in the financial year 2011-12, while its website had more than 400,000 visitors – up 21% from the previous year. Inquiries by email and personal appointment grew by 13%. |
| One of the main issues is that leaseholders are required to pay for maintenance through service charges, yet it is the freeholder or their agent who decides what work needs to be done, who will do it and what it will cost. | One of the main issues is that leaseholders are required to pay for maintenance through service charges, yet it is the freeholder or their agent who decides what work needs to be done, who will do it and what it will cost. |
| Many managing agents charge well above commercial rates. Some use their own subsidiary companies to carry out works, while others take kickbacks from insurance brokers for buying overpriced buildings insurance and pass the cost on to leaseholders. You can fight back, but it is easier to do if you have the support of your fellow leaseholders (see box). | Many managing agents charge well above commercial rates. Some use their own subsidiary companies to carry out works, while others take kickbacks from insurance brokers for buying overpriced buildings insurance and pass the cost on to leaseholders. You can fight back, but it is easier to do if you have the support of your fellow leaseholders (see box). |
| The sector is unregulated and anyone can be a freeholder or managing agent. Agents can join the Association of Residential Managing Agents (ARMA) but it doesn't guarantee a professional service for leaseholders at a reasonable cost. | The sector is unregulated and anyone can be a freeholder or managing agent. Agents can join the Association of Residential Managing Agents (ARMA) but it doesn't guarantee a professional service for leaseholders at a reasonable cost. |
| There have long been calls for an overhaul, or at least regulation, of the leasehold sector. Last week ARMA came to the end of a consultation on a proposed self-regulatory regime and will report back on its findings shortly. | There have long been calls for an overhaul, or at least regulation, of the leasehold sector. Last week ARMA came to the end of a consultation on a proposed self-regulatory regime and will report back on its findings shortly. |
| One leaseholder who regrets buying his flat is Rhys Davies. The 25-year-old bought with his partner in Cardiff in May 2011. The couple were given an estimation of the service charges by the estate agent, but the bill has gone up since they moved in. | One leaseholder who regrets buying his flat is Rhys Davies. The 25-year-old bought with his partner in Cardiff in May 2011. The couple were given an estimation of the service charges by the estate agent, but the bill has gone up since they moved in. |
| "The costs are expensive, the company are an absolute nightmare to get hold of if you have any queries, and you are at their mercy if they decide to put the costs up," he says. "The worst is, I have absolutely no idea what service we are allegedly paying for, beyond electricity for lighting the corridors, and mowing the grass." | "The costs are expensive, the company are an absolute nightmare to get hold of if you have any queries, and you are at their mercy if they decide to put the costs up," he says. "The worst is, I have absolutely no idea what service we are allegedly paying for, beyond electricity for lighting the corridors, and mowing the grass." |
| If you are thinking of buying a leasehold flat there are a number of things you should first find out, such as the ground rent, historical and future service charges, projected expenditure including major works, and clauses in the lease that will limit the use of the property. Some ban sub-letting, while many ban pets. | If you are thinking of buying a leasehold flat there are a number of things you should first find out, such as the ground rent, historical and future service charges, projected expenditure including major works, and clauses in the lease that will limit the use of the property. Some ban sub-letting, while many ban pets. |
| "The key message to any buyer should be that you are not actually buying a property, you are only buying a contractual right to use a property for the term of the lease, often subject to a myriad of limitations," says Chris Alexander, a solicitor at SA Law LLP. | "The key message to any buyer should be that you are not actually buying a property, you are only buying a contractual right to use a property for the term of the lease, often subject to a myriad of limitations," says Chris Alexander, a solicitor at SA Law LLP. |
| Leaseholders can get free advice from the Leasehold Advisory Service or Leasehold Knowledge Partnership, and ultimately can take a dispute to the leasehold valuation tribunal, where it will be heard by an independent panel. Another option is for leaseholders collectively to exercise their "right to manage". | Leaseholders can get free advice from the Leasehold Advisory Service or Leasehold Knowledge Partnership, and ultimately can take a dispute to the leasehold valuation tribunal, where it will be heard by an independent panel. Another option is for leaseholders collectively to exercise their "right to manage". |
| But there are better ways to buy a flat than leasehold. The usual alternative is to own a share of the freehold – technically you will still be a leaseholder, but on a long lease of up to 999 years. Usually each leaseholder will own a share of a company that owns the freehold. Under this arrangement, upkeep of all the common areas will be the responsibility of the shared freeholders, who can either arrange the work themselves or employ a managing agent. Crucially residents remain in charge of how money is spent. Another system of tenure for flat owners – commonhold – was introduced in 2004. | But there are better ways to buy a flat than leasehold. The usual alternative is to own a share of the freehold – technically you will still be a leaseholder, but on a long lease of up to 999 years. Usually each leaseholder will own a share of a company that owns the freehold. Under this arrangement, upkeep of all the common areas will be the responsibility of the shared freeholders, who can either arrange the work themselves or employ a managing agent. Crucially residents remain in charge of how money is spent. Another system of tenure for flat owners – commonhold – was introduced in 2004. |
| Commonhold is similar to share of freehold but the number of years are not limited. However, few new commonhold flats are being built, as developers do not have the incentive of profiting from the freehold. | Commonhold is similar to share of freehold but the number of years are not limited. However, few new commonhold flats are being built, as developers do not have the incentive of profiting from the freehold. |
| Case study: Freehold also has its pitfalls | Case study: Freehold also has its pitfalls |
| When I bought my flat in Manchester, writes Sally Briggs, I was convinced I'd made a smart move by buying a share of freehold, rather than a leasehold, property. The freehold was only shared with the owners of one other flat, so it seemed like a great arrangement. However, I soon revised this view when I came to sell. | When I bought my flat in Manchester, writes Sally Briggs, I was convinced I'd made a smart move by buying a share of freehold, rather than a leasehold, property. The freehold was only shared with the owners of one other flat, so it seemed like a great arrangement. However, I soon revised this view when I came to sell. |
| "When you're buying a flat, alarm bells should ring if you see individual owners as the freeholders," says Paul Goward, property partner at law firm Joelson Wilson. "It might not be a problem when you buy, but you should always think of how it might impact when you want to sell." | "When you're buying a flat, alarm bells should ring if you see individual owners as the freeholders," says Paul Goward, property partner at law firm Joelson Wilson. "It might not be a problem when you buy, but you should always think of how it might impact when you want to sell." |
| When I came to sell I could not get one of the other freeholders to sign the document that transfers the freehold property into the name of the new owner. The problem went on for months and very nearly cost me my buyer. Only the threat of court action did the trick. | When I came to sell I could not get one of the other freeholders to sign the document that transfers the freehold property into the name of the new owner. The problem went on for months and very nearly cost me my buyer. Only the threat of court action did the trick. |
| I had never heard of problems with selling a share of freehold flat before, but it seems I am not alone. The Leasehold Advisory Service says it sees numerous disputes relating to share of freehold, some identical to mine. There are things you could – and should – do before you buy a share of freehold property. | I had never heard of problems with selling a share of freehold flat before, but it seems I am not alone. The Leasehold Advisory Service says it sees numerous disputes relating to share of freehold, some identical to mine. There are things you could – and should – do before you buy a share of freehold property. |
| "From the outset, the freehold owners should consider setting up a management company, which owns the freehold property," says Goward. "Each owner has a share in the company and at the direction of a director the company would be the entity to provide consent." | "From the outset, the freehold owners should consider setting up a management company, which owns the freehold property," says Goward. "Each owner has a share in the company and at the direction of a director the company would be the entity to provide consent." |
| On a sale, an individual owner would sell its share in the management company which avoids obtaining each shareholder's signature. | On a sale, an individual owner would sell its share in the management company which avoids obtaining each shareholder's signature. |
| Because of the problems it has seen relating to share of freehold, the advisory service has issued advice to people buying this type of property to consider a declaration of trust. | Because of the problems it has seen relating to share of freehold, the advisory service has issued advice to people buying this type of property to consider a declaration of trust. |
| "Where the building contains only a few flats it is not always appropriate to form a company to share the freehold. For so few leaseholders, this can be prove cumbersome," says Simon Tye, legal adviser at the LAS. "The alternative, where there are four or fewer leaseholders, is to own it jointly on the title deeds. Where this happens it is advisable to enter into a declaration of trust which will set out, in a binding document, the relationship and obligations between the co-owners." | "Where the building contains only a few flats it is not always appropriate to form a company to share the freehold. For so few leaseholders, this can be prove cumbersome," says Simon Tye, legal adviser at the LAS. "The alternative, where there are four or fewer leaseholders, is to own it jointly on the title deeds. Where this happens it is advisable to enter into a declaration of trust which will set out, in a binding document, the relationship and obligations between the co-owners." |
| The declaration is not a cure-all, he adds, but can include things such as stipulating that the share of freehold relating to each flat is transferred when each one is sold and that the other joint owners agree to co-operate in transferring the freehold on sale. | The declaration is not a cure-all, he adds, but can include things such as stipulating that the share of freehold relating to each flat is transferred when each one is sold and that the other joint owners agree to co-operate in transferring the freehold on sale. |
| Sally Briggs is a pseudonym | Sally Briggs is a pseudonym |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| HSBC | HSBC |
| Nationwide | Nationwide |
| Provided by London & Country for the Guardian |