All yours - except for the bricks and mortar

New legislation has improved rights for leaseholders but the old problems haven't all gone away. Felicity Cannell reports

Residential leaseholders - property owners whose occupancy expires after a fixed period of time - often see the professional freehold landlord as the devil incarnate, and not always without cause. Despite the 1996 Housing Act - still coming into effect - which was designed to build on previous legislation to improve their lot, England and Wales's 1.5 million leaseholders still face problems.

The Campaign Against Residential Leaseholder Abuse (Carla) lobbies for leaseholds to be abolished on the basis that flat dwellers should own the bricks and mortar in which they live. John Mitchell, who set up the campaign, has been inundated with stories of misconduct by freeholders and considers residential leaseholding to be out of date.

The estate agent Savilles in Fulham, London, finds no problem selling leasehold flats. Problems arise, it considers, when freeholders appoint dubious managing agents. Lindsay Cuthill of Savilles, cites one example: "Residents in a particular building have annual service charges of pounds 700-pounds 800. A similar block costs no more than pounds 200-pounds 300. Every time the managing agent changes a lightbulb he charges over the odds, but as receipts are provided and he stays just on the right side of the law, nothing can be done."

Leasehold properties are widespread, but the highest concentration are in central London and in the North, around the Wirral and Newcastle. Leaseholding came into being in the Middle Ages. The freeholder was then the lord of the manor, now the landlord. This very term denotes leaseholding as tenancy as opposed to ownership. It is a system almost exclusive to this country.

It does, however, appeal to some. Financially it is better than renting and it comes without some of the headaches associated with a freehold property. Someone else will manage the communal areas, paint the exterior, mow the lawn, and some people like this - even though they have to pay. This fee is called a service charge.

New legislation protects leaseholders from extortionate service and maintenance charges to some extent, but these remain one of the biggest problems associated with leaseholds.

So what do you do if you are presented with a hefty bill? First, don't be intimidated. The threat of eviction and repossession should not be taken seriously unless the landlord can prove that charges are reasonable. Eviction notices should be referred to the Government funded Leasehold Enfranchisement Advisory Service (Leas). Leas offers free advice on disputed charges as well as advice on extending leases or buying freeholds.

Fear of potentially huge costs from a court action is one factor which prevents many leaseholders from challenging landlords. There is, however, a new system in the pipeline to settle grievances outside the county courts. Leasehold valuation tribunals will handle disputes and help to set fair prices for freeholds. The tribunal will charge a set fee - a maximum pounds 500 is proposed - and will not have the power to award costs. The process was due to come into effect this month but has been put on hold until after the election.

All the main political parties have promised legislation to protect leaseholders. One system currently being considered is commonhold tenure. Each flat is owned freehold, while common parts are jointly owned and managed by a commonhold association. This system is in widespread use elsewhere in Europe, Australia and parts of America and works well, but although the principal is supported by all parties, the details have been heavily criticised.

Short lease properties are a hazardous investment. They difficult to sell, not least because with less than 75 years to run on a lease a property may be deemed unacceptable by a mortgage lender.

This is despite the fact that leaseholders now have an automatic right to extend leases, except in very unusual circumstances, if their original lease was longer than 21 years, but the cost of this varies enormously. Simple formulas, supplied by some estate agents, can be misleading. Many factors are taken into account by the landlord including the loss of income from ground rent - once a lease is extended there is no more ground rent to pay - the loss of reversion, (the amount the landlord would hope to make by selling a new lease), and the marriage value - the net difference between the current value of the property at its value when the lease is extended.

"Leaseholders can be easily misled concerning the process of lease extension," says Tony Essien, at Leas. "It is a very technical process and is not as straightforward as people have been led to believe." Ground rent is a considerable income to the small group of professional landlords who dominate the market. Likewise reversion, which would be an inheritance for the freeholder's children or grandchildren.

A leaseholders rights of first refusal if the freehold came up for sale came into force in 1987, but there were no sanctions for the landlord who ignored this. Now failure to comply is a criminal offence bearing a fine of up to pounds 5,000. If offered the freehold, the leaseholder has up to two months to respond. But the asking price may be high and the leaseholder has no bargaining power if the landlord has received an offer elsewhere. If the landlord does sell without first offering it to the resident the new landlord is compelled to reveal how much he paid and give the leaseholder the right to buy at that price. The leaseholders then has six months to make a decision.

This process is open to abuse. If the landlord sells at an inflated price, perhaps to a family member, this may force the leaseholder to pay over the odds. The answer is to get in first. The best way to secure a fair price is for the leaseholder to approach the landlord with a compulsory enfranchisement.

The criteria for this is that participating residents, a minimum of two thirds in a block of flats, must be resident and have lived in the property for at least one year, or for three years in the last 10 if presently absent. The original leases must have been for at least 21 years. An additional criteria, the low rent test, was abolished last week for flats but is still in force for leasehold houses with leases under 35 years. Leaseholders must expect to pay both sides' fees and legal and surveying costs may be high.

But the enfranchisement process is reasonably straightforward and Leas report that most freeholds purchased this way are settled amicably, with most landlords willing to sell. Collectively buying the freehold of your flat need not be too disruptive and can only improve its saleability. Despite this, few collective purchases and extensions have been made since legislation was passed in 1993.

If you don't want the responsibility, you can remain a leaseholder while others in the block buy. You won't have a say in how the building is run and you miss out on having automatic extended ownership of your property, but you can still extend your lease, your rights are increasing and with a good landlord you can sit back and let someone else deal with the headaches.

Leasehold Enfranchisement Advisory Service 0171-493 3116.