Buying a flat, can the freeholder screw you over?

Schwarzwald

I am in kinda this situation right now.
completed on a Leasehold flat in London last December.
it is a long terrace with converted townhouses, ie some 20-25 units in the entire terrace
freeholder and Mgmt company is a housing association.

The roof was the only aspect my survey didnt cover and while i knew there is a major works cycle coming up in 2022, there were no indications (we had asked that in the process) that the roof needs replacement.

i just received a pro-rata cost estimate for >£15k or 3% of purchase price. I definitely didnt expext the timing and amount.

while I agree that if the roof needs renewing it doesnt make much difference if you own a freehold property 100% and renew it or own a leasehold unit and pay your pro-rata share.

however, what definitely makes me uncomfortable in this process is the lack of transparency and control over the costs for the repairs.

i have enquired to receive more details, but in the Leasehold scenario i definitely see the risk (and trying to mitigate that right now) that there is an incentive for the Freeholder/management company to overcharge the private leaseholders relative to the other units in the property, especially those owned by the freeholder itself (eg they own 70% of units and private leaseholders 30% but given lack of transparency they try to shift the costs to 60/40).

i am not saying this is happening in my case, but it is a way the freeholder can screw you over.

they have an incentive to shift their costs to you and also as they are charging a % handling fee on the total budget actually benefit from higher costs, which is not helpful.

anselld

Schwarzwald said:

I am in kinda this situation right now.
completed on a Leasehold flat in London last December.
it is a long terrace with converted townhouses, ie some 20-25 units in the entire terrace
freeholder and Mgmt company is a housing association.

The roof was the only aspect my survey didnt cover and while i knew there is a major works cycle coming up in 2022, there were no indications (we had asked that in the process) that the roof needs replacement.

i just received a pro-rata cost estimate for >£15k or 3% of purchase price. I definitely didnt expext the timing and amount.

while I agree that if the roof needs renewing it doesnt make much difference if you own a freehold property 100% and renew it or own a leasehold unit and pay your pro-rata share.

however, what definitely makes me uncomfortable in this process is the lack of transparency and control over the costs for the repairs.

i have enquired to receive more details, but in the Leasehold scenario i definitely see the risk (and trying to mitigate that right now) that there is an incentive for the Freeholder/management company to overcharge the private leaseholders relative to the other units in the property, especially those owned by the freeholder itself (eg they own 70% of units and private leaseholders 30% but given lack of transparency they try to shift the costs to 60/40).

i am not saying this is happening in my case, but it is a way the freeholder can screw you over.

they have an incentive to shift their costs to you and also as they are charging a % handling fee on the total budget actually benefit from higher costs, which is not helpful.

To be clear, the Freeholder can charge a management fee so long as it is reasonable and consistent with work done but they cannot *legally* "shift cost" outside what is defined in the Lease.  Also, the more units the Freeholder owns the more the incentive to reduce cost, not the reverse.  Any lack of transparency under the Section20 consultation process can be challenged at the Tribunal.

canaldumidi

Is the freehold also being sold?

Might the 2 leaseholders also be purchasing a 50% share each of the freehold?

Schwarzwald

anselld said:

Schwarzwald said:

I am in kinda this situation right now.
completed on a Leasehold flat in London last December.
it is a long terrace with converted townhouses, ie some 20-25 units in the entire terrace
freeholder and Mgmt company is a housing association.

The roof was the only aspect my survey didnt cover and while i knew there is a major works cycle coming up in 2022, there were no indications (we had asked that in the process) that the roof needs replacement.

i just received a pro-rata cost estimate for >£15k or 3% of purchase price. I definitely didnt expext the timing and amount.

while I agree that if the roof needs renewing it doesnt make much difference if you own a freehold property 100% and renew it or own a leasehold unit and pay your pro-rata share.

however, what definitely makes me uncomfortable in this process is the lack of transparency and control over the costs for the repairs.

i have enquired to receive more details, but in the Leasehold scenario i definitely see the risk (and trying to mitigate that right now) that there is an incentive for the Freeholder/management company to overcharge the private leaseholders relative to the other units in the property, especially those owned by the freeholder itself (eg they own 70% of units and private leaseholders 30% but given lack of transparency they try to shift the costs to 60/40).

i am not saying this is happening in my case, but it is a way the freeholder can screw you over.

they have an incentive to shift their costs to you and also as they are charging a % handling fee on the total budget actually benefit from higher costs, which is not helpful.

To be clear, the Freeholder can charge a management fee so long as it is reasonable and consistent with work done but they cannot *legally* "shift cost" outside what is defined in the Lease.  Also, the more units the Freeholder owns the more the incentive to reduce cost, not the reverse.  Any lack of transparency under the Section20 consultation process can be challenged at the Tribunal.

In theory that might be correct, but the reality is more blurred I find.

While my Lease stipulates my % in my townhouse number (2 units) it does not say anywhere what % my townhouse represent of the entire building/terrace (say 10 converted townhouses).

So i have no transparency for now if the allocation to our townhouse number is correct. And there is a clear incentive to allocate more costs to this townhouse number than to the other 9 in a terrace of 10, which are predominantly Owned by the freeholder.

In regard to costs: also in theory true, but people in organizations are deciding on the (framework) company and everywhere where large sums of money are allocated, there is a risk of undisclosed kick-backs and bribes, maybe not to the organization but potentially at the individual level of decision makers within organizations that are not known to pay huge salaries, eh housing associations.

All i am saying is: these risks might be remote, but they seem to exist as as a leaseholder you dont control the decision making process and do not have access to all information, which is different to owing the freehold / freehold and leasehold.

I hope I am too suspicious and all is done the way it should be done, but as i said: i was recently asked to contribute substantial £££ without much transparency.

Sorry for slightly hijacking this thread, but i think relevant to the OP’s initial question

eddddy

Schwarzwald said:

While my Lease stipulates my % in my townhouse number (2 units) it does not say anywhere what % my townhouse represent of the entire building/terrace (say 10 converted townhouses).

On that specific point, the argument would be "It said in the lease what percentage you had to pay. If you didn't want to pay that percentage, you shouldn't have bought the lease."

It falls into the wider category of "If you don't like the terms of the lease, don't buy it."

Schwarzwald said:

In regard to costs: also in theory true, but people in organizations are deciding on the (framework) company and everywhere where large sums of money are allocated, there is a risk of undisclosed kick-backs and bribes, maybe not to the organization but potentially at the individual level of decision makers within organizations that are not known to pay huge salaries, eh housing associations.

I kind of agree with you. But the protection the leaseholder has against that happening is that they can challenge unreasonable service charges.

So if work is done and the freeholder is charged £1,200 (which includes a £200 kick-back)... If a leaseholder can show that another contractor would have only charged £1000 (because they don't give kickbacks), a tribunal would order that the freeholder can only recover £1000 from the leaseholders.

The risk of that happening might even deter the freeholder from hiring over-priced contractors (even if no kick-backs are involved).

But its a lot of work and hassle for a leaseholder to gather evidence for that kind of challenge.