A property scandal has quietly been unfolding across the UK over recent years.
As though rising house prices and huge deposits haven’t already made home ownership difficult enough for an entire generation, a controversial income generation tactic used by property developers is causing huge financial headaches for those who have managed to get their foot on the ladder.

Nothing New

Leasehold arrangements are nothing new in the UK. Usually leasehold purchasers rent their property from its owner over the long-term, with contracts ranging in length from 100-999 years.

Leaseholders typically pay a nominal ground rent on the property, often as little as £1 per year. They also have to ask the owner for permission when carrying out major building works like extensions or conservatories.

Hidden Charges, Rising Costs

Details are now emerging of property developers adding crippling terms to leases that see ground rents double every ten years and hidden charges levied for re-mortgaging, planning applications and even answering correspondence.

Even worse, such terms are often buried deep in legal contracts and the homes sold as ‘virtual freehold’ properties.

The Scale

The Leasehold Knowledge Partnership estimates that up to 100,000 householders are currently trapped in such contracts with average ground rents of £371. While that sum is manageable in the short term, the government reports that some families face ground rent charges of £10,000 per year by 2060.

Government Clampdown

The government is currently looking into an outright ban on leasehold sales but this will do little for those who are already trapped – many of whom will find it difficult to sell homes that come saddled with creeping costs. The government also wants to see compensation schemes set up.

How to Avoid

If you’re about to purchase a leasehold property that’s advertised as a virtual freehold, use a fine-tooth comb when picking through the legal documents. Many developers work in partnership with conveyance solicitors who are described as independent but often turn out to be anything but. If unsure, have your contracts looked over by a legal team you trust.

What the Future Holds

Government consultation over the leasehold scandal is to take place over the coming six weeks. Early signs are that sights are set on outlawing the practice altogether but the government will have to do some serious problem solving if it is to placate those who are already ensnared whilst ensuring a fair outcome for the millions of landowners who use the system fairly.