Leasehold properties can trace their origins back to Victorian England. During this era, the burgeoning middle class sought to invest in properties, but the freehold title (ownership of the land) was typically retained by aristocratic families. This historical fact is one reason a large part of central London remains under the control of a select few wealthy families.

Today, while the leasehold system is recognized in England and Wales, many countries, including some that initially adopted English law, have transitioned to a ‘commonhold’ system. In a commonhold setup, flat owners collectively own and maintain shared areas like the lift shaft, corridors, and roof.

Leasehold: What Do You Really Own?

When you buy a leasehold property, you’re essentially buying time. Contrary to common perception, leaseholders are more like long-term tenants. The law perceives them as such, meaning you can lose your lease for debts exceeding £350, even if the property is worth millions. There are 1.1 million leasehold houses, and experts often advise against purchasing them unless they’re situated on lands like those governed by the National Trust.

The Challenges of Leasehold

Leaseholders often find themselves at a significant disadvantage. The freeholder, who holds the building’s ownership in legal terms, can generate revenue in various ways:

• Charging ground rents
• Appointing management
• Organizing insurance, major works, and maintenance
• Extending leases
• Issuing permissions, such as allowing pets, often with fees attached.

Many freeholders, seeing the potential for considerable revenue, hold these assets anonymously, often in offshore accounts.

In 2016, the Leasehold Advisory Service, an organization assisting leaseholders, reported that a staggering 57% of leaseholders regretted their decision to buy. The dissatisfaction rose further in light of huge safety bills post the Grenfell tragedy.

Post-2010, there was a spike in leasehold house constructions. Developers, aiming to profit, sometimes misled customers into purchasing these properties. Housebuilders further exploited the system through initiatives like “Help To Buy”, leading to issues like unsellable homes due to ten-year doubling ground rents. However, the Leasehold Knowledge Partnership charity worked diligently to bring these concerns to the public’s attention.

Efforts Towards Reform

By 2017, the magnitude of the leasehold crisis led the Government to seek the Law Commission’s guidance on reform. This consultation resulted in the 2022 Leasehold Reform (Ground Rents) Act, effectively ending the creation of new ground rents. With further reforms expected to be announced in the King’s Speech on 7 November, there’s hope for improved transparency and fairness in the system.

Advice for Potential Leasehold Property Buyers

For many young professionals, especially in cities like London, leasehold flats often present the only affordable property option. If you’re considering a leasehold property:

1. Engage Independent Professionals: Always hire independent conveyancing lawyers and avoid those recommended by developers or estate agents.
2. Beware of Aggressive Ground Rents: Avoid properties with ground rents exceeding 0.1% of the sale price.
3. Understand Your Environment: Recognize that you’re buying into a communal setting. Familiarize yourself with the management of the building and avoid problematic freehold owners.
4. Check for Residents Associations: The presence of a formal recognized residents association indicates a degree of leaseholder empowerment.
5. Research Litigations and Major Works: Ensure there are no upcoming significant expenses that could impact your finances.
6. Tread Cautiously with Local Authority Flats: These flats often lack contingency funds, leading to unexpected major bills.

In conclusion, while leasehold properties might appear attractive, it’s essential to approach with caution and arm yourself with the right information. The leasehold system has a complex history and presents numerous challenges, but with due diligence and the right advice, it’s possible to make informed decisions in this market.