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What Can I Do About Rising Ground Rents and Service Charges?
It has been dubbed “the next PPI scandal” by no less than the BBC (https://www.bbc.co.uk/news/uk-england-46279048) but an increasingly common conveyancing scenario is seeing more and more leaseholders and freeholders purchasing new homes being subjected to rising ground rent and service charges.
This issue arises where a homeowner purchases a brand-new property from a developer, and provisions are included in the transfer or lease which give rise to additional periodic charges being made by the freeholder or their agents. Often, these charges are justified and necessary – for example, where a block of leasehold flats is maintained and insured by the freeholder, service charges are quite normal so as to reimburse the freeholder for those expenses.
However, over the past few years, some developers have started to include more provisions within the initial legal paperwork that unfairly punish the homeowner, and these provisions are only really coming to light now that the first owners of the properties are looking to sell on. In many cases, they are finding their property hard to sell because of the unfair provisions in the lease or transfer, often to the extent that the property is actually unmortgageable and therefore potentially unsellable.
Such provisions can include rising ground rent for a leasehold property, where the ground rent doubles every 5 years. While on the face of it, ground rent of £100 per year may seem to be a minimal expense, if that doubles every 5 years, it will be £1,600 per year after just 20 years, not to mention the ongoing doubling every 5 years after that! A property with ground rent of more than £250 outside London or £1,000 in London is considered to be potentially unmortgageable.
Another common issue is that newly built houses are being sold as leasehold properties. Typically, a flat will be leasehold and a house will be freehold. There are odd exceptions to this, but there is no real reason that a house should be held under a lease, other than to allow the freeholder to reserve an annual ground rent, which forms nothing more than an additional tax on the land. Too often now, buyers are discovering years down the line that they can only buy the freehold interest from the freeholder at a substantial cost.
A further issue arises where an estate of freehold properties is sold with common areas, such as estate roads and communal gardens which are not adopted by the local authority, and the homeowners are charged a proportion of the cost of maintaining that area. Often, that cost is spiralling and homeowners have little option but to pay to avoid legal action. The freeholder or developer can however quite rightly point to the lease or transfer, signed by you, as evidence that you should have been aware of the charges.
If you find yourself in any of the situations described above, you may have a claim against the freeholder or developer if the charges are improperly administered, but it is also possible that you may have a claim of negligence against your original conveyancing solicitor if the potential costs were not properly explained to you at the time of your purchase.
The Government has long indicated plans to amend legislation to properly protect leaseholders and freeholders, but as you will have noticed they seem rather busy with other matters at present.
If you have any queries regarding leasehold or freehold properties please do not hesitate to call us for a free, no-obligation chat on 0207 703 5034 or fill out our contact form. We are happy to answer your questions and advise how we may be able to help.
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