QUESTION
May I ask what advice you would give to a prospective purchaser of a new house which is being sold as leasehold by the Developer?
ANSWER
There has recently been considerable adverse publicity about the residential leasehold system in consequence of the alleged mis-selling of leases of new-build houses by some Developers. Purchasers have not been made aware (or have not been properly advised) that a lease will often include provisions for payment to the landlord of an annual rent and also restrictions on what changes can be made to the property by the leaseholder. For example, the level of rent may seem relatively innocuous at the start of the lease but there are some leases which provide for that rent to increase over time to exponential levels, thereby rendering the lease valueless. Equally, there are leaseholders of some new build houses who find that they cannot make any changes to their property without the freeholder’s consent; such a leaseholder can find himself having to pay for even minor changes to the property or its use. There was a time when Developers were trusted not to mis-sell their product. The recent publicity has eroded that trust.
So, it might be said that the obvious answer is: don’t. However, it is not as simple as that. The latest government statistics suggest that in England there are some 4.2m leasehold dwellings of which about 1.4m are houses. In some parts of the country, leasehold is the generally accepted basis on which houses are sold. Also, there can be circumstances where a lease may be more suitable than a freehold.
Understand that a leasehold is never the same as a freehold, even if it is described by the Developer as a “virtual freehold”. A leaseholder will only have possession of the property for a fixed period of time, even if that period is very long. The lease may well restrict what the leaseholder can do to the property. The detailed terms of the lease (particularly the rent) will influence the value of the lease and the purchaser needs to know and understand those terms and the impact (now and in the future) that they have on that value.
Always take professional advice from a solicitor and a valuer, both wholly independent of the Developer, who are familiar with the local land market and the leasehold system. It is vital that the purchaser is made fully aware of exactly what he is buying; knows and understands what are the terms of the lease and is properly advised that the price being paid fully reflects those terms. Otherwise: don’t.
Damian Greenish, Consultant at Pemberton Greenish
