What you need to know but didn’t know where to ask!

The excitement of your new home is all consuming. It is like the first weeks with your partner, it is the excitement of the shiny new toy, it is all embracing. Of course as with any consuming thing there is a reality behind.

Does your significant other pick their teeth, leave their clothes scattered or obsessively tidy up? These are the things you notice when the excitement wains, when the newness wears off.

Your home can be the same. You go around the new development, see the show flat, fall in love with the dream of the furniture, the view the ideal. But in reality the home is the walls and the fixtures, all the other stuff comes from you. Not some interior designer. Of course, the experience of communal living can come as a shock.

Communal living? Well not in the sense of sharing space but in reality if you buy a flat in a block then you have to respect what other people do and how other people live. Recently Leasehold Advisory Service (LEASE) initiated a survey sponsored by Brady’s solicitors. The survey conclusions are fascinating and illuminating. Basically the message is property managers need to keep improving and communicating with the leaseholders more but there is also the necessity for more education for leaseholders to help them understand what they are buying in to.

First Time Buyer magazine is incredibly far sighted in the guidance, articles and information it provides for you to help you buy your first home. Last issue of the magazine there was a great article on service charge. Service charge is one area where you can never know enough and there will always be suspicion on the expenditure or someone saying they could undertake work cheaper! What LEASE is endeavouring to do is provide the education to assist leaseholders and prospective leaseholders to better understand their rights, responsibilities and ownership.

This is an ongoing journey of course and in reality never ending. We have relaunched the LEASE website as part of this which is cleaner, crisper and with much easier navigation. We would recommend you search the website to answer any questions you may have on all matters leasehold, find out your rights and responsibilities along with understanding what you are buying into. There is a one page document that estate agents should be handing out to all prospective purchasers which you can find on the website. It was produced in conjunction with residential property trade bodies and organisations to give an understanding of what it means to buy leasehold. There is also a two page version which gives more information. From there it is making sure that you get answers to any questions you have. In fact every question you could possibly have will be answered on the LEASE website.

There is a number of factors that will result in more leasehold property and therefore it is highly likely your first home will be leasehold. The Housing Act 2016 is introducing a commitment on starter homes. This is in addition to the right to buy which has been extended to renters of housing association homes. Given that a lot housing association property is flats then the renters will become leaseholders and need to know their rights and obligations.

The starter homes are being forecast to mainly be developed in leasehold blocks of flats. The reason for this is one of economics and development profitability. To achieve the desired discounted prices for the starter homes there has to be the maximum development on a site and that usually means blocks of flats. The result is more leasehold coming through and the probability of your first home being leasehold.

Therefore knowing your rights and obligations would seem sensible. Having easy access to them is what LEASE offers. The advantage of having knowledge of leasehold is that when you come to viewing prospective homes you can wallow in the show home, get lost in the views, and dream of your life in your new home with eyes open and clear understanding.

When you have bought your home then LEASE will be there to help with initial advise and the website will be there for questions as they arise and occur. Of course First Time Buyer magazine gives you the wealth of information as well to guide you.

Estate Agents & Leasehold

The customer dominates wherever you look and whatever you are involved with. From the politicians backbiting to secure voters in the EU referendum through to Ryanair revolutionising its treatment of customers – everyone is competing for the consumer. No area of life can afford to take people for granted or be cavalier in their handling.

The consumer has a wealth of different options to make their voices heard if they are not happy with the service. From twitter to facebook to Instagram, the list is endless. Of course it may be unfair criticism or it may be misunderstanding; regardless the power of the web is such that all businesses have to be on their game the whole time.

Estate agency is undergoing a revolution with the shake-up in online versus high street or a blend. All the while the consumer views selling their home as a simple process where the fees are not worthy of the effort they perceive; the buyers get confused and believe the estate agent is acting for them. These perceptions are not helped by the portrayal of estate agents in films and programmes along with the adverts for the on line portals.

In a race to discount fees and still deliver service how do the properties get accurately marketed? At a time when there are more leasehold properties being built how does the consumer get the information they need to know their full liabilities and responsibilities?

Three times LEASE have tried to put on a webinar with the RICS to do a high level analyses of what an estate agent needs to know about leasehold, three times it has been postponed for lack of bookings! If the estate agent doesn’t know the difference between leasehold and freehold how will the consumer? If the particulars do not include the nature of ownership (leasehold or freehold) then how can a prospective buyer know what they are taking on? How can we educate the buyers if we don’t give them the right information?

This is an area that is debated. Should particulars be required to include leasehold details? Should particulars show service charge, lease length, obligations? Or do you rely on the consumer finding out when they have got in to solicitors hands? Then this brings in a whole other dynamic – how do you make sure the discount priced conveyor belt conveyancers understand the complexity of leasehold and the buyer gets the proper information easily and readily?

It is natural to be driven by price in a choice of services. In any transaction that is undertaken infrequently how do you know all that you need to? Why would price not be the best starting point? If you do not know the complexity of leasehold why would you think a mass conveyancer would not be able to cope?

LEASE are trying to educate owners, buyers, estate agents and all involved or touching leasehold properties to know what they need to know. It is essential estate agency embraces the need for spreading the understanding of leasehold. Essential? Well yes, because as already said more leasehold properties are being built. The reason more leasehold properties are coming is threefold. Firstly the developer gets an extra capital sum for selling the ground rent investment created through leasehold. Secondly, the proliferation of blocks of flats equals leasehold. Finally when there are shared estate roads or facilities there is a need for contributions to the running costs that is achieved easier through leasehold than covenants on freehold.

You should be aware that there is a one page document produced for distribution to prospective purchasers of leasehold property to highlight basic information to help them understand what they are buying into. Of course that relies on it being distributed and that relies primarily on estate agents who will always be the first to come into contact with prospective buyers.

The information is one part of the equation. It is an essential part and an ongoing part, but only one part. The other part will come as no surprise; this is the need for the lease details to be on particulars.

Only by giving full information will the estate agency community start to help educate the consumer on leasehold. But to get to that position it needs the estate agency community to learn about leasehold themselves; for them to gain a basic high level understanding of the needs and necessities of the impact and effect on the consumer.

Shared ownership, what responsibilities?

For the first time buyer the Government is going out of its way to embrace you and encourage you to get on the home ownership ladder. This has been demonstrated in words and deeds. The Chancellors budget statements launched an additional 3% on stamp duty for investors and second home owners along with interest not being able to be deducted for buy to let owners. Moreover the Housing Bill contains commitment for 20% starter homes to be incorporated in to development schemes going forward. As well as the ability for private developers to look to shared ownership and not just registered social landlords and housing associations.

So if the Government is looking to see the delivery of more homes then the developers have to look at how they can achieve this. According to the Savills research team shared ownership will become of increased importance to facilitate the starter homes targets as well as deliver increased housing stock.

Furthermore the developers will be looking at flats as the predominant way to maximise profits from sites. This means for you the chances are you will be looking at leasehold in some form and most likely shared ownership when you get on the home ownership ladder. It seems sensible to look at shared ownership as a form of ownership. What are the implications and what does it mean to the home owner?

Shared ownership is a form of leasehold ownership that means you rent part of the home and have a long lease on the other part. The ratio varies but typically you would initially buy 25% to 50% of the property and rent the remainder. The lease will provide the mechanism to buy in more shares in the property to allow the owner to escalate to 100% ownership. Once you have escalated to 100% ownership then you hold the lease outright in the same way as someone buying a leasehold property in the open market.

Prior to escalating to 100% then you will be paying towards the following: the rent for the part you don’t own; service charge for your share for the whole of the home. So whilst you may only one 50% of the property, you will pay 100% of service charge from day 1. Service charge is the contribution to the running costs of the shared spaces in the building such as hallways, entrance and structure. A shared owner has the same rights as a full leaseholder to consultation (s20 consultation) on any major works that would mean the homes share is more than £250 for the work or there is an agreement to be put in place over 12 months with a cost of more than £100. Any item of expenditure has to be notified within 18 months of being incurred. Obviously as you escalate the percentage of the ownership the service charge will remain the same whilst the rent will reduce.

Buildings with shared ownership homes would usually be managed by housing associations however the surrounding parts may be managed by a different managing agent. This means that the housing association would invoice you for the service charge but not be carrying out all the services. There is an initiative underway with Leasehold Advisory Service working with housing associations and managing agents to ensure that there is greater communication between both parties to give better service and information to shared owners and a smoother running of buildings where both are involved.

When the Housing Bill gets enacted then it is more likely that shared owners will not see this overlap of management and may only have one party managing their property. This is the more normal situation presented to long leasehold home owners and makes it much easier to know who matters should be notified to and who is responsible for the services. It would be recommended you find out who manages the various parts of the building and estate and to whom matters should be reported. The clearer you are on what happens and who carries out the easier it will be to seek verification on expenditure, deal with any insurance claims and know where to go for information.

Shared ownership is a well-established form of home ownership and one that can work well. However, as with all leasehold there is a big advantage if you understand your rights and responsibilities and know where to go to seek clarity when needed.