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House builders allegedly unfair leasehold terms!


Know Your Tenures - Buyer Beware! There has recently been adverse publicity concerning alleged unfair terms of leasehold tenure. Some newly built homes have been sold as leasehold properties with escalating ground rents. This practice has been criticised as being unfair to buyers due to the high rate of increase in the ground rent, and in some cases freehold would be the most appropriate form of tenure.

So what is tenure? It is the legal term for the ownership of property. The two most common are:
 
FREEHOLD The property is owned outright and includes the land the property is built on. There are defined boundaries of the land and the owner is responsible for the maintenance of all that is built on the land. Domestic dwellings - detached, semi-detached or terraced are usually sold and transferred with freehold tenure.
 
LEASEHOLD The property, usually an apartment, flat, maisonette or garage forming part of a larger building, is owned leasehold. A lease is granted by the freeholder, the owner of the land on which the building is built on for a given period of time, typically 99, 125 or 999 years. The leaseholder pays a ground rent to the freeholder. The freeholder owns the land, the structure of the building and the common parts. The freeholder will arrange for the maintenance of the common parts, the insurance and the general management of the building. This cost is known as the Service Charge. All the leasehold owners pay a due proportion usually based on the size of their part of the main building.    
 
Philip Makepeace, Managing Director, of renowned local property developers, Norfolk Homes Ltd, said:
“We sell our homes freehold wherever possible and any leasehold homes on fair terms to our customers, for example; with small blocks of apartments, we allow the leaseholders to own a share of the freehold so they can control the costs of future maintenance. 
My advice to buyers of leasehold properties is to find out if the terms of the lease are fair and reasonable.” In particular, find out:
 
• How long is the lease?
• How much is the ground rent?
• What is the mechanism for increasing the ground rent over time?
• Are proper arrangements in place to manage and maintain the common parts and shared facilities?
• Is the service charge or budgeted service charge fair and reasonable?
• Who owns the freehold?
• Do the individual leaseholders own a share of the freehold?
• Do the individual leaseholders own the management company?
 

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