The Leasehold Scandal – What’s the problem?

Gareth Fatchett of FS Legal Solicitors LLP has partnered with Nelsons, and New South Law to get you the compensation you deserve.

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There are time limits for bringing a claim for professional negligence, check with us to see if you are eligible.

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We are working on 600+ claims already and our client base is growing rapidly each day.

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Contact us today to make your claim and receive compensation that could be used to buy your property's freehold.

Why LeaseClaims?

Lease Claims is a working alliance consisting of FS Legal, New South Law, and Nelsons. Divided nationally, we are working collaboratively to help the victims of the leasehold scandal to get them the compensation they deserve.

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What is a leasehold property?

With a leasehold purchase, the buyer is effectively only buying the right to occupy the property for a specified number of years from its freeholder. After that period the ownership of the property reverts to the freeholder.

Why am I locked into leasehold?

Mortgage lenders have recently started to reject applications from purchasers of properties which are subject to onerous Ground Rent clauses. Leaseholders will, therefore, find that they are unable to sell their properties without compromising on the price that they were hoping to achieve. Even to a cash buyer, a property affected by the onerous Ground Rent terms will be unattractive, as the burden of the clause will be inherited via the purchase. Leaseholders face the risk that they will remain locked into their lease agreements, unable to sell their properties, and forced to continue to pay the escalating rent charges.

Who is at fault?

Generally, parties to a contract are free to agree on terms, and Courts are reluctant to intervene, except in specific circumstances. For this reason, a claim against the developers or management companies is not likely to be very successful. A better option is to bring a claim for professional negligence against the conveyancer that acted on the purchase of the property. In the context of a property transaction, it is the responsibility of the solicitors instructed, to point out onerous terms to their clients, as well as their implications. As, arguably, purchasers would not have agreed to be bound by these terms, had they been made aware of the implications. Where a solicitor is liable for negligent advice, a claim for compensation can be made by the injured party. In this case, leaseholders who were either provided with negligent advice or negligently provided with no advice, as to the terms of the escalating ground rent, will be entitled to compensation.

What are the options?

Purchase the freehold or extend the lease

Generally, leaseholders who have owned their property for at least two years, acquire the right to either purchase the freehold or extend their lease (by 90 years for apartments or 50 years for houses) on top of the unexpired term. Each option will be a costly exercise for the leaseholder. A freehold which is leased and subject to an onerous ground rent clause is a valuable commodity to the freeholder, as it is a guaranteed income stream. With the rent set to increase, Freeholders are likely to set their premiums very high. The premium will also take into consideration professional fees (including valuation fees and the Freeholder’s legal costs), as well as the potential added value to the property.

How much would it cost?

The aim of a compensation claim would be to put the leaseholder into the position that they would have been in, had they not been affected by the Ground Rent Scandal. Simply put, the starting point for assessing loss will usually be the difference between what you paid for the property and what it was truly worth with the onerous clauses. This is known as ‘diminution in value’. Estimations, provided by a firm of chartered surveyors, suggest that the value of some properties has decreased by as much as 30%, were subject to an escalating Ground Rent clause. This estimation takes account of the amount and rate of escalation, the refusal by mortgage providers to lend, the difficulty in selling and the necessity of attracting a cash buyer. If successful, the compensation received could be used to allow the leaseholder to purchase the freehold and “unlock” themselves from the leasehold trap.It is worth noting that leaseholders of an apartment may need to form a “management company”, consisting of at least 50% of the leaseholders in the building, and it is that management company which would acquire the freehold.

Alternatively, a leaseholder may wish to extend the lease, as opposed to purchasing the freehold. This option may be more attractive for leaseholders who wish to use the extension process as a device for renegotiating other terms within the lease, such as those relating to permission fees and service or maintenance charges. For example, an extension of the term of the lease would be an option for leaseholders of an apartment who are unable to meet the 50% requirement discussed above. Again, any compensation received could be used to meet the payment of the premium discussed above.

Why is enfranchisement the solution?

Enfranchisement offers the opportunity to convert a leasehold interest to a freehold interest. Alternatively, a leaseholder may wish to enfranchise to extend their lease. In doing so, the leaseholder is given the opportunity to renegotiate the terms of the lease, and free themselves from the burdensome terms.

What about Leasehold Reform?

Whilst it is positive that these conversations and consultations are occurring at this high level, reform has and will continue to be a lengthy and gradual process. It is, therefore, not likely that any of the proposals will come into effect before some years, especially while Brexit remains at the top of the agenda.

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