Hidden clauses in leasehold agreements cost unlucky leaseholders thousands, warns property lawyer Stephen Hill
Leaseholders are paying the cost for hidden or unexplained terms and, in some instances, failing to get the professional advice they expect prior to and at the point of purchase. Some are even falling prey to unreasonable freeholders who are keen to exploit their rights to the full. Greater awareness of the issue across the property sector is urgently needed to prevent this.
According to the 2001 Census, 3.6m households in England and Wales are now living in property rented from a private landlord or letting agency – up from 1.9m in 2001. This is evidence of the extent of the buy-to-let boom and reflects the increasingly piecemeal nature of some urban housing stock, which has been broken up into smaller, rentable units and tends to be sold individually on a leasehold basis. The growth of the buy-to-let trend, combined with increased demand for rental property, has led to more people investing in leasehold properties and in some cases doing so without understanding the scope of their rights and those retained by the freeholder.
In the current marketplace, a general lack of understanding about leases and the rights of the freeholder is placing property buyers – in particular, smaller, buy-to-let landlords – at risk of losing significant sums of money. Among the things that may dupe leaseholders and their solicitors are hidden clauses giving the freeholder a right to claim an exorbitant amount of ground rent each year and a lack of understanding about what can happen to the value of the lease when its term falls below 80 years.
It is not unusual for buyers to find out the full implications of such issues only after it is too late and they have bought the property’s leasehold. Their solicitor may or may not have advised them on the terms of the lease fully and accurately. In some circumstances, the leaseholder may wish to challenge the freeholder over the terms of the lease but this can lead to unexpected difficulties.
As a professional negligence lawyer, I am currently representing four clients bringing claims against a single freeholder who allegedly forced them to accept unfavourable terms as part of an agreement to extend the lease on their properties. In each case, the solicitors acting for the four leaseholders failed to spot a hidden clause in the agreement requiring them to pay £100, or two thirds of the property’s rentable value, in ground rent each year – based on whichever is greater. The four leaseholders subsequently found that two thirds of the property’s rentable value equated to several thousand pounds a year.
Such practices are not that unusual and potential buyers who may be considering purchasing a leasehold property need to be aware of some of the most common pitfalls, particularly if they have never owned a leasehold property before. They should also hire a solicitor who can advise them fully on the implications of becoming a leaseholder.
Challenging the terms of a lease after contracts have been exchanged is much more difficult and in some instances we have found that leaseholders have suffered aggressive tactics from the freeholder, aimed at discouraging them from escalating the dispute.
Before exchanging contracts, property buyers need to be advised fully on the significance of their leaseholder status and the hidden detail should be scrutinised carefully. Of course, solicitors have a primary role here, but other property professionals could also be playing their part by doing more to flag the issue to potential buyers.
Stephen Hill is a partner at Bolt Burdon Kemp. He specialises in handling professional negligence cases in the property sector, as well as in other industries.
This content is brought to you by Guardian Professional. Join the housing network for news, views and the latest job vacancies in your area
Personal finance and money news, analysis and comment | guardian.co.uk
There are no comments yet. Why not be the first to speak your mind.