Buying a leasehold home or flat can mean paying too much for routine work, or a battle with your managing agent
A studio flat in Hastings, East Sussex, seemed the perfect investment for her two children when Sue Sammes was left a small inheritance seven years ago, but she’d unwittingly entered the murky – and expensive – world of leasehold property.
For the first 18 months, Sammes, 50, was delighted with her purchase, which was a studio in a house converted into three flats, worth between £59,000 and £80,000 each.
But she claims problems began to emerge after the freehold of the property was sold to Southern Land Securities, which uses Hamilton King Management as its managing agent for the flats. The leaseholders were shocked when they were sent a consultation notice for £21,580 for “major works”. Sammes’ share was £5,183.
She says that at the time she trusted they would do a good job. Yet later, a local tradesman estimated that the work on all the flats together should have cost no more than £6,000. Sammes and the other leaseholders claim that the paintwork was shoddy and that the bill included work that was never carried out.
“The quotes included ‘sealing’ the walls before painting, but this hasn’t been done and paint is peeling off already after just four weeks,” Sammes says. “We were also charged for an alarm on the scaffolding (£700) and roof repairs which weren’t done.”
The leaseholders complained to Hamilton King, which agreed to reduce the total bill to £11,320 plus surveyor’s fees and a 5% managing agent’s fee. But Sammes is still angry at the way she was treated.
“Our issue is that while the work clearly needed doing, this company authorised and charged us for shoddy workmanship and bumped it up with their fees, ie a surveyor at £1,500 plus VAT,” she says. “A local painter told us the work that had been done is likely to have cost in the region of £6,000.”
In a statement, Hamilton King said: “Estimates were obtained for the works from responsible contractors and the lowest estimate was accepted. The only fees added to the costs were the reasonable fees charged by the surveyor of 10% and 5% in respect of administration fairly undertaken.”
It added that, unlike most other managing agents, it offers leaseholders a monthly payment plan and has a complaints procedure in place.
Battles between leaseholders and managing agents are common across Britain. In one of the most high-profile cases, residents of Charter Quay in Kingston, Surrey, managed to reclaim £500,000 in service charges following a protracted battle through the courts. They also bought out their “head lease” for £900,000 – a fraction of the £3.2m the freeholder said it was worth.
Around 3m people in the UK own leasehold flats, and this number is set to rise as most new-build flats are sold leasehold. Many leaseholders claim that service charges are excessive, but that fighting the freeholders and managing agents is expensive and exhausting.
If you buy a leasehold flat you are simply buying the right to live in the property for a set period – usually 99 or 125 years. The land it stands on is owned by a freeholder or landlord, who will charge a ground rent. Freeholds can be a moneyspinner for housebuilders, who usually sell them on when they have finished building a development. They can also be bought and sold further down the line, often at auction. However, a landlord selling a freehold has to give existing leaseholders first refusal.
Qualifying leaseholders can force their landlord to sell them the freehold through a process called “collective enfranchisement”. This can be long and expensive, yet worthwhile. Once the leaseholders own the freehold they can manage the building themselves.
Another option for unhappy leaseholders is to exercise their “right to manage” (RTM), taking over certain responsibilities from the landlord without having to prove bad management. Leaseholders will need to set up an RTM company; the freeholder will then transfer the management responsibilities to the company.
Service charges pay for the maintenance of the communal parts of a building, such as staircases, roofs and gardens, as well as buildings insurance. But although it is leaseholders who pay for maintenance, it is the freeholder or their agent who decides what work needs to be done, who will do it and what it will cost.
Critics claim that managing agents may abuse this power by using their own subsidiary companies to carry out work, hiring surveyors at uncompetitive rates, earning commission from insurance brokers and adding a “management fee” on to bills.
Sebastian O’Kelly, a journalist, set up the Leasehold Knowledge Partnership last year to help leaseholders who believe they are being overcharged.
“People on the lookout for residential freeholds for sale – whether three small flats in a Victorian conversion or a block of 30 – are not buying them just for the ground rents,” he says. “Other income streams include placing the insurance and even padding the contracts for major works, which may or may not be necessary.”
Most leases stipulate a schedule of major works, which includes jobs such as repainting the building’s exterior or interior, fixing tiles on the roof and clearing gutters every so many years. The bills can be eye-watering – five figures is not uncommon.
However, section 20 of the Landlord and Tenant Act 1985 requires freeholders to consult leaseholders before carrying out work costing any individual leaseholder more than £250. The consultation must include details of at least two estimates and give leaseholders 30 days to respond.
Mike Daly, consultant solicitor at Rowlinsons and spokesman for the Conveyancing Association, says: “If you, as a leaseholder, suspect the freeholder is not dealing with the matter in a forthright and open manner, you can involve yourself by objecting to the notices and seeking further quotations. If the freeholder goes ahead without adhering to the strict rules, he may be prevented from recovering the costs.”
The Leasehold Knowledge website frequently cites cases of alleged overcharging and bullying of leaseholders, and O’Kelly is scathing about how leasehold works in the UK.
“It is run for the convenience of the developers – who sell the flats and then the perk of the freehold, along with income from sneaky clauses in the lease – and a terracotta army of leasehold professionals,” he says.
If you are thinking of buying a leasehold property it is important to read the lease carefully.
“Challenging the terms of a lease after contracts have been exchanged is much more difficult, and in some instances we have found that leaseholders have suffered aggressive tactics from the freeholder, aimed at discouraging them from escalating the dispute,” says Stephen Hill, partner and professional negligence expert at Bolt Burdon Kemp.
As well as the Leasehold Knowledge site, leaseholders in dispute with their freeholders or managing agents can get advice from the government-funded Leasehold Advisory Service. Its website had more than half a million unique visitors in the 2012-13 financial year, up 20% from the previous year, with advisers dealing with more than 41,000 inquiries.
Ultimately, leaseholders can take complaints to the First-tier Tribunal (Property Chamber), known as the Leasehold Valuation Tribunal until last month. This can rule on issues including service charges, major works bills, lease extensions, changes to leases, freeholds and insurance.