Welcome to the house of fun: more power for leaseholders

Excessive management fees levied by rogue freeholders have become a problem for many leasehold property owners in recent years, particularly in London. But this month extra protection against these and other abuses comes into force as the 1996 Housing Act becomes law.

The new act should put a stop to some of the worst scams adopted by dishonest freeholders. In particular, it should make it easier to challenge phoney and inflated charges and will make it a criminal offence for freeholders not to give leaseholders the right of first refusal when a freehold is sold.

The following are some of the most common complaints.

Q The service charges I've been stung for seem outrageous. What's the deal now?

APreviously, if leaseholders wanted to challenge service charges they had to go to court, which was a lengthy process. In the meantime, they were required to pay the charges or risk eviction for non-payment. The new act makes it easier to challenge excessive charges and prevents leaseholders being evicted while the case is being processed.

From next April, disputes about the level of the charge can be referred to a Leasehold Valuation Tribunal as a low-cost alternative to going to court. However, leaseholders may still be required to pay costs of up to pounds 500 at the tribunal.

A common ground for complaint is where the freeholder's manager chooses to take out unnecessarily expensive insurance (for the commission) or gives building work to associated companies which then overcharge. Under the new law, courts (or the tribunal, from April) can appoint a new manager where service or repair charges are excessive.

QThe right to buy the freehold sounds a godsend. How does it work?

AWhen freeholders intend to sell a freehold, they are legally required to offer it in the first instance to the leaseholders. Unfortunately, the act which brought in this requirement (the Landlord and Tenant Act, 1987) failed to specify any effective penalties on freeholders who refused to comply. So, many freeholders simply ignored their responsibilities.

Under the new act it is a criminal offence for a selling freeholder not to offer leaseholders the right of first refusal, and a fine of up to pounds 5,000 can be imposed on freeholders who fail to comply. Where a property has been sold without offering leaseholders the right to buy, the new freeholder also has the responsibility to offer leaseholders the option of purchase. If they fail to do so then that too is now a criminal offence, and can lead to a fine of pounds 2,500.

Companies can no longer sell properties to an associated company, and then sell the equity stake or replace the board of directors, as the law previously allowed them to do.

A majority of leaseholders must vote "yes" for the right of first refusal to be exercised.

QAre there problems where a local authority or housing association is the freeholder?

AYes. In many instances where local authorities and housing associations have sold leasehold flats to tenants there have been outstanding repair problems on the building. Leasehold buyers have been surprised later to receive large bills for major repair work to roofs, stairwells, entrance ways, etc. As with private freeholders, leaseholders can, from April, apply for a review of service and repair costs.

The Government believes that there is a case for restricting the maximum repair bills that councils and housing associations can charge to leaseholders, and there may be further legislation.

QNever mind the abuses, isn't there something wrong with the whole system?

AAll the major political parties think so. Regardless of who wins the next election, expect to see new legislation bringing in "commonholds".

The concepts of freehold and leasehold are leftovers from the feudal property system. Homes today are usually owned on a freehold basis.

But sometimes the landowner-freeholder sells the right to live in all or part of a property for an agreed period of time. In commercial properties, the lease may be for as little as a year. For homes, leases were often issued for 99 years. Legally, when a lease comes to an end, the property reverts to the freeholder, without compensation to the leaseholder (although leaseholders have the right of first refusal to renew the lease).

Freehold/leasehold arrangements are most common in flats, where people who regard themselves as owners of their flats are often, in fact, just leaseholders. It is prevalent in London.

A system of commonhold would give flat owners absolute right of ownership, while having shared ownership of, and shared duties towards, other areas of the building such as roofs and entrance halls. Commonhold, if brought in, would, however, probably only apply to new flats.

QWhere can I go for further advice?

AThe best publication is A New Lease of Life, available from Westminster City Council at a cost of pounds 5. Citizens' Advice Bureaux and local Shelter offices will also give advice to leaseholders, and Shelter also publishes a useful book, The Flat Owner's Guide, which it sells for pounds 7.50. Another guide to the ins and outs of leasehold flats is available, free, from the Department of the Environment. Call 0171 276 0900.

The Leasehold Enfranchisement Association is calling for further reform of the law. The association also provides practical assistance to leaseholders who are in conflict with freeholders. The LEA can be contacted on 0171 235 5128, or by writing to 10 Upper Phillimore Gardens, London, W8 7HA.

The Federation of Private Residents' Associations can be contacted on 0171 402 1581. A free leaflet on the liabilities and responsibilities of directors and officers of residents' associations is available from Property Underwriting Services, a buildings insurer. Send an SAE to Property Underwriting Services, Charter House, 43 St Leonards Road, Bexhill-on- Sea, East Sussex TN40 1JA.

Freeholders can buy a good practice guide on leasehold management from the Chartered Institute of Housing on 01203 694433. The guide will be published in December.