House divided into two flats - leasehold confusion

JeffMason

Hi All,
I'm looking to preferably buy a small freehold house but in London it's more likely I'll be able to afford a flat. I'm mostly looking at properties that are big houses split into two, an upstairs and downstairs flat.

Some I'm interested in are share of freehold and I've recently been told that one share of freehold has a 900+ years lease and is a 50/50 split of buildings insurance and anything else is done 'when and if needed'.

Others are leasehold (between 90 and 125 years on lease) with ground rent and service charges somewhere around £1200-£1500 a year. 

This all makes a reasonable amount of sense, but one I'm looking at now is slighly different - I'm told it's leasehold (107 years), the ground rent is £100 per year, insurance is £150 but other than that there are no service charges. I asked for clarification and got told there are minimal communal areas (just the hallway inside the shared front door) and the owners take turns to clean and get together on an ad hoc basis if there are any repairs. They said the same applies to the rest of the building but the freeholder is responsible too and costs are shared between freeholder and leaseholders.

This makes sense, although I wonder what the point of the freeholder is here? What are they getting out of it? And if this reasonable then why aren't all leasehold houses split into two flats the same? I've been to other very similar flats and the service charges have been £1200 a year and up. I suppose there might be building work that needs doing that without a service charge, I'd be liable for sharing the cost of, but is that really going to average out as £1200 a year? And wouldn't the buildings insurance I am paying cover most of that anyway?

I'm just a little confused about all these different variations on leasehold that I keep uncovering... Thoughts?

knightstyle

Could be the freeholder is the owner of one of the flats and repairs etc. are billed as and when they come up.  Main danger is that the seller may know of some large repairs needed soon and is selling now to avoid paying the bill which could be many thousands of £.  So before buying insist on the freeholder providing an estimate of repairs due in the next 5 years?

hazyjo

Your buildings insurance won't cover things that wear out and need replacing such as the roof. It's fine if people have spare cash or access to spare cash. But if they're not savers and there's a major roof issue, or the gutters need replacing, or unblocking, or there's a prob with drains that's not covered on insurance, where does the money come from? It's always handy to have a pot of money ready for such times.

JeffMason

knightstyle said:

Could be the freeholder is the owner of one of the flats and repairs etc. are billed as and when they come up.  Main danger is that the seller may know of some large repairs needed soon and is selling now to avoid paying the bill which could be many thousands of £.  So before buying insist on the freeholder providing an estimate of repairs due in the next 5 years?

You'd think the estate agent would mention it if that were the case though? They talked about "the freeholder and leaseholders".  Can I ask for an estimate of repairs due before I make an offer?

JeffMason

hazyjo said:

Your buildings insurance won't cover things that wear out and need replacing such as the roof. It's fine if people have spare cash or access to spare cash. But if they're not savers and there's a major roof issue, or the gutters need replacing, or unblocking, or there's a prob with drains that's not covered on insurance, where does the money come from? It's always handy to have a pot of money ready for such times.

Good point! But I guess this is an issue if I buy a freehold house too. This is what a survey would discover though, right? And I could negotiate the price if anything major might need doing soon, or just drop out of the purchase.

greatcrested

Reading the lease should tell you exactly how repairs and other costs are managed and paid for. It may be that the current 'owners' (of the leases?) simply arrange things amicably as and when, which may work fine whilst they cooperate, but you need to know what the actual legal requirements are in case there's disagrement, or a change of ownrship to someone less lexible.

The lease may be obtainable from the Land Registry (form OC2 £7), or will become available during conveyancing.

It's unlikely costs would fall on the freeholder, though responsibility for undertaking the repairs (eg new roof) probably falls on him, with th cost then passed on to the leaseholders in a way specified in the lease.

eddddy

In general, the lease will specify what the freeholder is required to do.

And the freeholder will claim back any costs from the leaseholders as a service charge. If there are 2 flats, it will normally be 50% each. Usually, the freeholder will estimate the costs for the year, and ask for payment in advance, then adjust it at the end of the year - based on what was actually spent.

Examples of things the freeholder is required to do might include:

• Arrange and pay for buildings insurance
• Arrange and pay for an electricity supply to the communal areas
• Arrange and pay for maintenance and repairs to communal areas - e.g. Repainting a communal hall, cleaning the communal areas, fixing/replacing the communal front door, maintaining the communal garden, repairing the fence around the communal garden etc
• Keep accounts, send out bills to the leaseholders etc

Plus there may be a management fee, essentially to pay the person who does all the admin for the above.

You might come to an informal arrangement with the freeholder about some things - like you'll clean the communal areas, cut the grass in the garden, repair the fence - but the freeholder might change their mind later, and decide that they want to arrange these things.

princeofpounds

JeffMason said:

This all makes a reasonable amount of sense, but one I'm looking at now is slighly different - I'm told it's leasehold (107 years), the ground rent is £100 per year, insurance is £150 but other than that there are no service charges. I asked for clarification and got told there are minimal communal areas (just the hallway inside the shared front door) and the owners take turns to clean and get together on an ad hoc basis if there are any repairs. They said the same applies to the rest of the building but the freeholder is responsible too and costs are shared between freeholder and leaseholders.

This makes sense, although I wonder what the point of the freeholder is here? What are they getting out of it? And if this reasonable then why aren't all leasehold houses split into two flats the same? I've been to other very similar flats and the service charges have been £1200 a year and up. I suppose there might be building work that needs doing that without a service charge, I'd be liable for sharing the cost of, but is that really going to average out as £1200 a year? And wouldn't the buildings insurance I am paying cover most of that anyway?

I'm just a little confused about all these different variations on leasehold that I keep uncovering... Thoughts?

OK, so it's just not going to be true that there are minimal communal areas. It's highly likely that the roof, the foundations, and indeed much of the building fabric is not in fact demised to the individual leaseholders. Possibly much of the garden areas as well.

It is also highly unlikely that the freeholder (assuming they are a separate third party) is ultimately responsible for the costs of maintenance etc. Though not impossible - leases can in theory be drawn up in all sorts of ways - I cannot think why a freeholder would set up a lease in such a manner without some offsetting compensation and I've never come across it.

It is not a fair comparison to evaluate service charges vs. ad hoc arrangements. Service charges are rarely fixed - they have to accommodate all the costs of maintenance etc., and that can go up and down. Good practice on service charges is actually to charge an amount that seems higher than regular maintenance, to build a fund with which to address rare but expensive maintenance that pops up over time, like roof replacement for example.

In theory (and I know that word is doing a lot of work), over time the cost of service charges should be the same as paying for maintenance ad hoc, although there may be modest management fees if a third party is allowed to charge them (freeholder or agent). 

So you really have to take these numbers you are given with a huge pinch of salt. Frankly, a good proportion of EAs you meet probably only have a vague understanding of what leasehold actually is. Maintenance (etc.) costs what maintenance costs, plus maybe a bit more or less for having a better/worse person arranging it, whoever it is. I could tell you that the service charge is 1k this year and has been for 5 years past, but if your roof needs replacing next year and you don't have a sinking fund, it's going to be 15k next year.

You need to read the lease to truly understand how it is legally supposed to work - they are generally similar but they do vary on important details. Sometimes leaseholders have ad hoc workarounds to get stuff done on a daily basis and that's fine, but it's not your ultimate legal position. 
 

bouicca21

Read the lease. Ask to see the service charge accounts. What sort of things are covered?  My service charge is usually around £1200 - that covers cleaning and lighting communal parts, window cleaner, Gutter cleaning, cutting the grass, pest control and minor ad hoc minor repairs E.g. replacing the odd tile, repairing fault on the front door buzzer.

Splitting the work between residents sounds fine if it actually happens.  What if it doesn’t?

JeffMason

Thanks alll. This is all very helpful. I'm starting to think that actual service charges are much better than this 'ad hoc' version, and getting a look at the lease seems like a very good idea.

This is exactly what the EA have told me about the lease and shared charges: "There are minimal communal areas  - simply a small hallway. The owners get together on an ad hoc basis if there are any repairs. They take turns to hoover. The same applies for the rest of the building but obviously the freeholder is jointly responsible too so costs are shared between the leaseholders and freeholder.  Buildings insurance is paid communally. No service charges. Insurance £150 per year. Ground rent is £100 per year."

What if anything should I be asking from them to get more facts and clarity? 

JeffMason

Follow up question: Most of these issues will still be the case with a share of freehold, right? The only difference is that I don't need to worry about renewing a lease and share of costs is between two sets of people and not three or more.