Beware the leasehold property trap

signing a contract
Freehold v leasehold

I typically prefer freehold properties to leasehold ones as ground rent payments, service charges and the cost to extend the lease and/or buy the freehold, soon adds up. This normally means looking at houses rather than flats, but in recent years houses on new-build sites have been falling into the leasehold ownership type too. Sometimes this is due to the landowner’s preference and sometimes the builder is setting themselves up for financial gain – either via the ground rent payments or by selling the freehold to an external company.

Ground rent charges can double every ten years

Whilst some new-build houses come with ‘virtually freehold 999 year leases’, there is a trap for the unwary. Imagine a clause in the lease that says you have to pay £200 per year in ground rent. Sounds reasonable? But what if it says this charge will double every ten years. Pretty harmless? Well in fifty years’ time the ground rent would be £6,400 each year! And another fifty years after that (when perhaps your great grandchildren will own it) there will be a compulsory £204,800 to pay each year! I don’t know what inflation will do by then but I wouldn’t want that obligation around my neck.

Make sure your solicitor is on the ball

Solicitors are starting to wise up to this and warn off potential buyers when they see such clauses in a lease – particularly when dealing with traditionally freehold houses.

Such clauses also mean that when the time comes to extend the lease the ‘marriage value’ will be higher than normal.

Huge charges for home alterations

There have been reports in the media that owners of fairly new houses are being charged thousands of pounds for permission to make alterations to their home, such as adding a conservatory.

The alternative is to pay tens of thousands to buy the freehold – or be held to ransom with a property that may become nearly impossible to sell.

As ever, make sure you read the small print and crunch the numbers!

Article by Clive Janes, CRJ Lettings.01243 624599 or email:
Image by Andreas Breitling from Pixabay



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