New Build: Leasehold "Scam"

usefulmale

Joss1978 wrote: »

All seems rosy until I look at the far future.What happens in the really long term - 100 years... 200 years... down the line - when the building is surely beyond a state in which it can simply be repaired/maintained. At some point the building itself will become uninhabitable...and therefore worthless... and yet I would still be legally required to pay annual ground rent, wouldn't I? Am I missing something?

Are you quite sure you are still going to be around in 200 years to worry about that?

moneyistooshorttomention

....and I thought I thought further ahead than most Joss:rotfl:

But that is a valid point - and someone somewhere along the line does look as if they'd be left "holding the baby" of paying for a property that no longer existed - but still had x years left on the lease. So - occupying a property that couldnt actually be physically occupied...:cool:

That is an interesting thought...and I'd like to hear the answer to what would happen then. All sorts of possibilities I guess - eg the leaseholders clubbing together to fund a new building and the freeholder having no legal option but to accept they'd done that (ie rather than getting a free gift of ground rent money for absolutely nothing)? v. population levels had become so low (that's a whole other debate - probably involving how society across the world as a whole is in the future) that Council planners no longer bothered about things like planning permission (to squeeze us all in) and the owners could just put up any temporary structure they liked on their land?

Hmmm...would be interesting to know..

zagubov

moneyistooshorttomention wrote: »

....and I thought I thought further ahead than most Joss:rotfl:

But that is a valid point - and someone somewhere along the line does look as if they'd be left "holding the baby" of paying for a property that no longer existed - but still had x years left on the lease. So - occupying a property that couldnt actually be physically occupied...:cool:

That is an interesting thought...and I'd like to hear the answer to what would happen then. All sorts of possibilities I guess - eg the leaseholders clubbing together to fund a new building and the freeholder having no legal option but to accept they'd done that (ie rather than getting a free gift of ground rent money for absolutely nothing)? v. population levels had become so low that Council planners no longer bothered about things like planning permission (to squeeze us all in) and the owners could just put up any temporary structure they liked on their land?

Hmmm...would be interesting to know..

It does seem to be capable of generating a long-term problem n a way that perpetual timeshares have for their owners (ie they're a drain on their and their inheritors estates ad intifinitum and will be [STRIKE]difficult[/STRIKE] impossible to offload).

davidmcn

Joss1978 wrote: »

Forgive my total ignorance. I'm sure there's a simple explanation to the question I'm about to pose but for a MSF (MoneySavingFledgling) these things all seem so complicated.

re. 999 year lease with £500 annual ground rent subject to review every 10 years linked to RPI. Very common, right? Arguably the only sensible way of organising a shared building (a block of buy-to-let student flats)...

To my limited knowledge this arrangement seems to be fine in the short to medium term. Rental income will rise more or less the same as the ground rent and all the buy-to-let investors (like me) will make a tidy profit (8% net yield after all costs and the ground rent has been paid).
All seems rosy until I look at the far future.What happens in the really long term - 100 years... 200 years... down the line - when the building is surely beyond a state in which it can simply be repaired/maintained. At some point the building itself will become uninhabitable...and therefore worthless... and yet I would still be legally required to pay annual ground rent, wouldn't I? Am I missing something?

The ground rent is just for the ground, the maintenance costs are separate. Why would the building be uninhabitable because it's old? I'm surrounded by 100-200 year old buildings and they're pretty habitable.

Petite_Anglaise

This is interesting- does anybody have the link to the news article that this featured in the other week?

In an ideal world we would avoid leasehold like the plague, but we cannot afford anything else but flats so there is no escape.

Even for new build houses (which are very rare indeed)- they all seem to have service charge and ground rent.

We recently looked at some Help to Buy London developments- the 3 bedroom flats had a service charge of £1900/PA and a ground rent of £500/PA!!

Lease length was 250 years.

Okrib

There’s no problem with leasehold per se, and in certain cases it is unavoidable to have a leasehold interest (such as a converted house).

There’s also no particular problem with ground rents being set at whatever level the developer thinks they can realistically get away with (though buyers can and should challenge it, especially on new builds, and ask what they are getting for it).

The real issue is the doubling of ground rents every 10 years or so. That should absolutely not be allowed, it’s scandalous and means the buyers will be unlikely to be able to sell. It’s the major reason why trying to extend your lease directly with the freeholder, rather than through the official Section 42 route, should always be avoided.

No solicitor should let their client sign up to any doubling ground rent. It should be grounds for a formal complaint.

davidmcn

Okrib wrote: »

There’s no problem with leasehold per se, and in certain cases it is unavoidable to have a leasehold interest (such as a converted house).

It would be avoidable if the law was reformed. None of this nonsense in Scotland.

Minimalist1978

Does any of your payments go into a sinking fund to help pay for major works in the future?

Yes, the agreement is slightly complicated but the end result is that there are 3 different charges that I must pay -
1) "Ground Rent" £500p.a
2) "Insurance Rent" charged separately and variable but approx <£100 p.a. (not a deal breaker by any means)
3) A further "Service Charge" which includes all ongoing maintenance costs as well as a 'Reseve fund' to cover major works in the future, as you suggested.

To be honest, the rental income figures (at least as far as is forseeable) more than cover these extra costs and the total bottom line deductions (all 3 combined) doesn't amount to more than 30% of the gross income.... still leaving around an 8-10% annual yield.

In summary, the figures I am contracted to pay are not extortionate at all all the time the building is in a habitable/lettable condition. And as the rest of the contract seems to require the landlord to maintain and insure said condition, it seems fairly safe to assume that the business will run, run and run for the whole 999 years! ...and my family dynasty can all relax with their 31st century cigars!

What could possibly go wrong?!

Thanks for all your comments. In the really long term scenarios there are so many ways it could all go that it's barely worth thinking about, especially given how volatile and unstable today's world is. The law will doubtless change tenfold between now and then and I like to think that common sense is slowly prevailing.

Dare I assume that?

carguy143

I wouldn't touch a leasehold house for the reason you won't own the land your house is built upon unless you pay extra for the leasehold. Then, if you do buy the leasehold you could be left surrounded by neighbours who didn't which could in theory make it easier for someone (read, property developer) to compulsory purchase your house if the neighbours leases expired.

davidmcn

carguy143 wrote: »

if you do buy the leasehold you could be left surrounded by neighbours who didn't which could in theory make it easier for someone (read, property developer) to compulsory purchase your house if the neighbours leases expired.

That sounds rather fanciful. Property developers don't have rights to compulsorily purchase anything. Besides, we're (generally) talking about modern estates - what are the chances of any wholesale development taking place in the foreseeable future?