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Leaseholds - Good no more?

In the area from which we practice, and in particular the southern part of Brighouse, and much of Huddersfield and Oldham, there has been a tradition that houses are owned as leaseholds. Our view had always been that this made no significant difference to the value of the property. The leases, in general, are of good quality and sensible, and the landlords have been responsible and fair.

Over recent years, more and more of the freehold reversions have been sold to companies who are committed to making money from its ownership. This is not something to criticise, but it is coming to make a difference to our advice, to the extent that we now advise clients to be cautious about the purchase of leasehold locally.

There are three main areas of concern.

  1. Leases have traditionaly required payment of only a small amount in respect of the cost of the registration of assignments. This amount has been uneconomic, but some freeholders are now insisting on the payment of economic, or better, costs. Although this may be incorrect under the lease, in practice it will always cost the tenant more to argue about it, than to pay the increased and unwarranted fee. This suggests an attitude in the landlords that they are determined to be unreasonable.
  2. Another question arises where the lease authorises the landlord to insure the property. This allows them to make an uncompetitive insurance arrangement, and to take a substantial commission. On some houses, this may make a difference of one or two hundred pounds per year in premiums.
  3. The last area relates to permissions for the alteration of the property. All leases require that the occupier of the house obtain the permission of the freeholder before work is carried out. This is in addition to and quite separate from any planning permission. The trouble is that, if the work is completed before the permission is obtained, the freeholder can hold the householder to ransom and demand a substantial penalty. We have not seen this begin to happen locally yet, but it will. In past, for example, companies have sought payment of sums as much as 500.00 for what might properly have cost 25.00 if the consent had been obtained in advance.

All three circumstances suggest freeholders from whom it would be sensible to distance oneself. The obvious step is for the householder to buy the freehold reversion from the landlord. Whilst this is an additional expense which in the past we would advised was an unecessary expense, we are now clear in our advice to our clients that unless the nature or layout of the building suggests that a leasehold is the only appropriate way of holding the property, the householder/tenant should seek to buy the freehold.

There is always 'another hand' When you buy a freehold, the freehold and leasehold titles are merged. In effect the leasehold estate disappears. The law says that it does not make sense for you to be your own tenant (or indeed landlord). In practice, this can lead to other difficulties. The main advantage of leaseholds is the way it provides, relatively easily, a way of regulating the interests of those living next door to each other.

Many freeholders offer to sell thefreehold for a small sum. The natural temptation is to accept the offer and buy. This will sometimes make sense, but the question then arises of what happens to the obligations between neighbours which operated under the lease. A simple transfer of a simple title can do great harm. The position is complicated. How can obligations be created between a freeholder and an adjoining leaseholder, and how can the various other combinations of relations be coped with. Whatever the answer is, a simple transfer will not do.

Important: Please note that our law-bytes are retained for archival purposes only. The law changes, and these notes are often, now, out of date. You must take direct advice on your own personal situation and the law as it currently stands.
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18 October 2013 http://www.swarb.co.uk/lawb/ltnLeaseNoGood.shtml 255 18 October 2013