Leasehold properties are common in Bristol, more so than in other areas of the country. In our conveyancing world, we see lots of properties that are subject to leases in Bristol, not just the usual flats in a block, but also semi-detached homes, maisonettes, and terraced houses.
Often the word ‘leasehold’ is met with a shudder from potential house-buyers, who are concerned that their right to enjoy the property may be limited by the lease, or that they’ll be tied in to unfair charges.
Are leasehold properties a problem in Bristol? And are the ground rents unfair?
A brief explanation of leasehold properties
When you buy a leasehold property, you own the building, but not the land that it’s built on. That’s owned by the freeholder. Effectively, you’re the tenant for the period of the lease.
This may feel like a confusing set up when you’ve bought your home, as it’s the language of renting rather than home ownership. It’s not a cause for concern though – you still own your house. You just need to pay attention to the terms of the lease.
The main thing to note form the lease is its length. Often these are long leases for 999 years. The longer the lease, the more advantageous it is for you. The value of the property may reduce if the lease length is below 80 years.
Ground rents – are they a problem?
One quirk of leasehold properties is that they are subject to ground rents. Even though you own the property, you still pay rent to the freeholder.
In most cases, this is a nominal amount. It’s an annual charge and tends to be around £50.00 – £100.00. But we have seen ground rents for as little as £2.90 a year.
Usually, that’s a manageable or even negligible burden for the homeowner. So long as the lease specifies that the lease remains the same every year, then it’s unlikely to be an issue.
Where it does become an issue is when there are terms in the lease that allow the ground rent to escalate. For example, some ground rents are defined as a percentage of the value of the property, like 0.1%. If the market value of your property increases year-on-year, so does the ground rent.
Even worse is where the lease allows the ground rent to double every 10 years. This could hike the rent to extortionate levels over time.
Whilst most ground rents for older leasehold houses tend to be for small amounts (and fixed, and not capable of being increased), if you don’t pay your dues, you could face legal action. Rather counterintuitively, this could result in the forfeiture of your property. The freeholder can only begin legal action if you owe £350.00 or more, but that’s still a relatively small amount to face losing your home over.
Renegotiating the ground rent
Is there anything you can do about your ground rent?
If you have an existing lease, then your ground rent will not change unless you negotiate with your freeholder, or extend your lease. If you extend your lease, there’s a good chance that the ground rent will reduce to zero (or a ‘peppercorn’ as it’s commonly known).
Buying back the freehold
Another option is to buy back the freehold. You can ask the freeholder to sell it to you at any time under the Leasehold Reform Act 1967.
It’s a fairly complicated process, and you’ll need a professional valuation to move forward. Usually you’ll need formal legal representation as well, as it’s best to make an offer for the freehold through your solicitor. We can guide you through the process and negotiate on your behalf.
New reforms
Recently, the government has brought in new laws to protect leaseholders, generally. The Leasehold Reform (Ground Rent) Act 2022 applies to new leases created after 30 June 2022 and brings in three major protections:
- limiting any new ground rents on most residential leases to zero
- giving existing leaseholders enhanced rights to extend their lease to 990 years at zero ground rent
- historic ground rents will be deemed unrecoverable.
This law was aimed at preventing developers of new builds to capitalise on ever-increasing ground rents. The practise of escalating ground rent year on year should now be eradicated, and leaseholders have better rights to extend their leases.
How we can help
If you’d like any advice about an existing leasehold property, or you’re thinking about buying a new leasehold property, please do get in touch. We’ve seen lots of properties like this in Bristol and the surrounding areas and we can explain how other people have handled similar situations. We’ll give you advice about any onerous clauses in the lease, whether or not to extend the lease, and what you can do about the ground rent.