Leasehold vs Freehold (with Estate rentcharge)

MaebyJade

Hi, hoping for a bit of advice as with a dilemma I have. 

In 2016 I purchased a new property on a leasehold and I currently pay £300 a year for the lease/service charge. About 2 years ago, I received a letter from the council and the developers with an offer to convert my leasehold to a freehold, with an added bonus of them paying for all legal fees to do so. With the pandemic things took longer than expected but I have finally received the "deed of variation" to sign before I get the freehold. Reading the terms, I noticed there was an something "Annual Sum" which I had to pay, when I queried it with the solicitors, below was the response I got. Having read about Rent Charges for freeholders I am very hesitant to go ahead with the transfer. Should I stay on a leasehold, as I have some protection, or should I take transfer to a freehold? Thanks       

"The annual sum can be deemed a rent charge together with the £1 annual sum as noted as a rent charge in the transfer deed. There is also no statutory mechanism to challenge the level of charges imposed by an estate rent charge.

There is a risk to homeowners and mortgage lenders for failure to pay an estate rent charge this can be referred to as a maintenance charge/service charge/annual sum   (a) after just  40 days of non-payment (b) non observance of the covenants  contained in clause 12.5 the following additional rights are automatically granted to the rent charge owner:

1. The right to grant a lease over the property under s 121 LPA 1925  is excluded under clause  12.6.1.2

2. However the right of entry/possession of the Property and forfeiture by the owners is included under 12.6.1.2 . Although this is unlikely, the fact that the right is available can put off future purchasers and lenders.

There is no need for any legal demand to have been made for payment or for notice of any action to be given by the rent charge owner to the home owner.   

Mortgages and Rentcharge Provisions 

Some mortgage lenders have now begun to introduce criteria with regards to rentcharge provisions.  Please be aware of the following:

- As any provisions which they may decide to introduce in the future are impossible to predict, we would strongly advise that you seek independent valuation advice if you have any concerns about the impact that the rentcharge provisions or indeed any possible changes to the rentcharge provisions could have on saleability of the Property in the future."

Titus_Wadd

Have they given an approximate annual figure for the estate rent charge and rent charge?  Is it significantly higher than your leasehold service charge?  That's probably the next question to ask, even though it's like asking how long is a piece of string.  They seem to be able to "think of a number" on the small estate we live on.  We were charged roughly £1500 Estate Rent Charge and £1 Rent Charge p.a. for the first couple of years but with nothing to show for it, followed by a bill 3 times that last year.  Even though our transfer docs and the T&Cs of the Management Company refer to the costs being "reasonable", as your solicitor advised, there's no statutory formula to calculate what is "reasonable" for freeholders.

Hopefully someone with greater insight will be along to explain it better than I can.  Make use of your solicitor with a few "What if" scenarios and ask how they would play out under current rules.

daveyjp

Whilst there are issues with leasehold, service charges etc it is well established in law, well understood and procedures are in place for when there are disputes.

Rent charges are still a draconian solution.

MaebyJade

Titus_Wadd said:

Have they given an approximate annual figure for the estate rent charge and rent charge?  Is it significantly higher than your leasehold service charge?  That's probably the next question to ask, even though it's like asking how long is a piece of string.  They seem to be able to "think of a number" on the small estate we live on.  We were charged roughly £1500 Estate Rent Charge and £1 Rent Charge p.a. for the first couple of years but with nothing to show for it, followed by a bill 3 times that last year.  Even though our transfer docs and the T&Cs of the Management Company refer to the costs being "reasonable", as your solicitor advised, there's no statutory formula to calculate what is "reasonable" for freeholders.

Hopefully someone with greater insight will be along to explain it better than I can.  Make use of your solicitor with a few "What if" scenarios and ask how they would play out under current rules.

The Annual Sum quoted on the paperwork is £250 per annum plus an additional £1. This is fixed for 10 years (until 2030). The current leasehold service charge we pay is £300 per annum.