(09/05/16)The big bills that a leasehold flat could land you

Investigating the pitfalls of leasehold properties

Stung by an unexpected bill for maintenance to your house or flat? Be grateful it’s not a £50,000 bill landing on your doormat…

I was reading a news story about a 24-year-old homeowner of an ex-council flat in Oxford. She had got a letter from Oxford City Council demanding a whopping £50,000 to help refurbish the tower block her flat is in.

Having lived in the flat as a leaseholder for five years, Alicia knew she would have to budget to pay towards maintaining the council-owned block (ie although she owns the flat, the council owns the freehold of the building). But given that the average salary for under-25s in the UK is £16,400, a £50k bill is obviously unmanageable.

The charge is part of a £20 million plan to refurbish five 1960s tower blocks, and the council has offered various options for payment, including a three-year repayment plan (at around £1300 a month) and the possibility of the council taking equity in the flat.

This is what Oxford City Council said: “These five tower blocks were built in the 1960s and many component parts are at or beyond their intended useful life. We urge anyone who is worried about the costs and what it means for them to get in touch with us.”

The Oxford case is obviously an extreme example of leasehold charges, but there are plenty of council-owned blocks of flats the length and breadth of the country. A great many of these were built in the 1960s and getting on a bit… so don’t expect the Oxford incident to be an isolated one…

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So just what is a leasehold property?

With a leasehold, you don’t actually own the structure of the building or the land it’s built on. This means that you aren’t responsible for the maintenance of the building. That’s the landlord’s (or freeholder’s) responsibility.

However, the leaseholders share the costs of this by paying a service charge to the landlord. You may also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future.

Precisely how much these service charges are is variable. Generally, they cover the maintenance of interior and exterior fittings in communal areas, upkeep of gardens, and bills for communal services.

How do you protect yourself from unexpected costs?

You have certain rights as a leaseholder to stop a freeholder landlord from taking financial advantage. These rights include the option to view:

• What and how any service charges are being spent
• The way in which these costs have been worked out
• any supporting paperwork, such as receipts for work carried out

The landlord also cannot take certain actions without letting you know and seeking your approval. This includes any work set to last more than a year, building work that will cost more than £250, and any other work (eg redecoration) that will cost you more than £100 a year.

The repairs and maintenance within the confines of your property are your responsibility, but you will need often to get approval from a freeholder to make any significant changes. This will generally be specified in your leaseholder agreement.

Other charges to be aware of:

• Ground rent (this is the charge for use of the land on which your property is situated)
• Buildings insurance (this is normally arranged by the freeholder or their agent)
• General administration charges (If this is part of your leaseholder agreement, make sure you understand exactly how these are broken down)

Contesting charges you think are unfair

If you’re unhappy with the charges or the way the property is managed you can do one of two things – make use of the Right to Manage, or appoint a new manager.

The Right to Manage is legislation that lets leaseholders take over some management duties from the freeholder. You don’t have to prove bad management for this, but to get the right to manage, you need to qualify under certain criteria, then start your own management company with the other leaseholders within your freehold. Naturally, this can be a little complicated…

Appointing a new manager is in some ways a simpler solution than exercising the Right to Manage, but to take this route you’ll have to prove bad management on the part of the freeholder’s current agent.