Can I first of all very belatedly wish all conveyancers everywhere a very happy and prosperous New Year?
Of course, the Christmas and New Year break was a good time for catching up on things, including the newspapers. A couple of reports I came across started me thinking, always a bad thing!
Firstly, an article in the Daily Mail on December 29th headed ‘The risks of buying a leasehold property’. This was in response to a question from a reader which read:
“I am a first-time buyer and after 12 years of saving for a deposit, am finally in a position to buy my first home.
“I have found a three bedroom house in a newly redeveloped site which I can afford but now my solicitor has said I should be worried because it’s a leasehold and I’m not buying the freehold.
“The lease is 999 years long and I thought lots of flats and houses in England are leasehold? Should I abandon this house or does it not really matter?”
I won’t bore everyone with the advice given by the newspaper’s ‘experts’ suffice to say that there was some confusion between leasehold flats and leasehold houses. Nor will I comment on the solicitor’s advice as to being ‘worried’, but it did remind me of a colleague a few years ago who was selling a leasehold house with the buyers being represented by conveyancers ‘somewhere down South’. Having sent out the usual pre-contract package he received an email by return asking ‘The property is a house – why is it not freehold?’ Ignorance indeed.I think a text on basic property law was recommended!
But back to the plot. There was one piece of very good advice tucked away in the Daily Mail article which is well worth passing on and this is in regard to increases in the ground rent. As readers will be aware, this is usually fixed for the first 10 or 25 years but then increases every few years. Some leases set out the increases expressly, some require the ground rent to double every 10 or 25 years, many others require an increase according to increases in the Retail Price Index. The point is, says the article, “it is entirely possible that in a particular location, the compounded RPI rises could push the ground rent excessively high and render the property unsaleable.”
This is scaremongering; very few houses are ‘unsaleable’ no matter what their issues might be, but it is the case what is a reasonable ground rent now might become excessive in the future and this could affect the future value of a house. Indeed, the CML Handbook has long acknowledged this:
5.14.9 We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable. If you consider any increase in the ground rent may materially affect the value of the property, you must report this to us.
So it is something that we should be giving some thought to, but of course, we are not valuers, nor have we – or indeed valuers – got a crystal ball to foresee what will happen to inflation or property prices in general. But do look at the increase provisions carefully. Take a rent of £250 per annum doubling every ten years. In 30 years’ time – not so long in the future – it will have become £2000, a rather large amount each year. Of course, due to inflation, £2000 in 30 years’ time could be worth no more than the £250 originally payable; nobody knows or can guess. But do tell buyer clients of the increases and if in doubt tell the lender also and suggest they consult their valuer; it is a valuation not a legal issue. Ignorance in this case might well be bliss!
And yet more ‘ignorance’
The other report I came across was in the North Wales issue of the Daily Post. On January 2nd it reported:
“Householders on a newly built estate in Llandudno Junction, were shocked to receive a letter before Christmas informing them they didn’t own the freehold on their properties – but they could buy it for £3,500… One resident who did not wish to be named told the Daily Post: “A lot of people didn’t know they didn’t actually own the land the property is on.”
Apparently, a public meeting had been held attended by 50 residents to discuss the matter.
But of course, as the builder’s managing director is reported as saying:
“This is a point which is made clear in all the relevant documents and which we are careful to draw attention to during the buying process.
“It is also something that should have been made clear to each homebuyer by their legal representatives during the conveyancing process, as all the details are included in the solicitor’s guidance pack.”
It just seems unbelievable – but maybe it is not an example of ignorance but just an example of how ‘forgetful’ clients can be – particularly when it suits them. Certainly, conveyancers give clients much more information about the property they are buying than they did when the writer started in practice. But it does appear to be the case that the more information we give them, the less they remember – or maybe the less they actually read. It may well be, as a former colleague told me, that clients only read half of what you send them – and remember the other half!
I hesitate to suggest that we perhaps give them too much information – I am well aware of the reasons for doing this – but wonder whether it is better to give them information a little at a time throughout the transaction – on a sort of drip feed basis – or in one long comprehensive report just before exchange?
One hesitates to suggest adding even more information to that already given to clients, but do we/should we tell buyers of leasehold houses that, once they have owned the house for two years, they have an absolute right (under the 1967 Leasehold Reform Act, as amended) to compel the freeholder to sell them the freehold at a price fixed as laid down by the statute? It might bring us in a little more work if we get to do the conveyancing!
One interesting fact from the Daily Post article is that “According to UK government figures, last year around 6,000 new houses were sold as leaseholds.” Is this just a way of getting more money out of buyers? Certainly, there seems no difference in price between new freehold properties and those sold on long leases. Sometimes, however, a lease may be deemed necessary to ensure that positive covenants – perhaps to maintain an environmental area or a sewage treatment plant – are binding on successors.
But there are other ways of achieving this that don’t result in extra payments to the seller. These ‘other ways’ include using an estate rentcharge –- which many conveyancers again seem never to have heard of. Another case of ‘ignorance’ not being bliss.