Freeholders still walk tall in flatland

Landlords rule the roost in two million homes bought on leases. Will new rules change that? asks Melanie Bien

Problems with the landlord often seem to go with the territory if you own the lease to your home rather than the freehold. Leaseholders may fork out hundreds of pounds every year on ground rent and service charges but it's not unusual to get precious little in return.

Problems with the landlord often seem to go with the territory if you own the lease to your home rather than the freehold. Leaseholders may fork out hundreds of pounds every year on ground rent and service charges but it's not unusual to get precious little in return.

New rules on commonhold come into effect this month under the Commonhold and Leasehold Reform Act 2002. But will they answer the prayers of those flat owners at the mercy of landlords who can't be bothered to carry out maintenance or who demand extortionate service charges?

The Leasehold Advisory Service (Lease) warns that while the new legislation aims to replace the archaic and flawed leasehold system, it won't have much impact on the two million leaseholders in England and Wales.

And the Association of Residential Managing Agents says the majority of leaseholders won't be able to convert to commonhold because this requires 100 per cent agreement by all parties involved. As a result, commonhold is more likely to be adopted in new developments than in existing ones.

Under commonhold rules, there are no leases. Each flat or house within a building or estate is owned separately; the owners set up an association through which they are jointly responsible for the repairs and insurance of communal areas. The big advantage lies in getting rid of outside landlords, who may use the freehold to make money out of the residents.

Under the leasehold system, owners buy the right to live in a property for a set number of years - an agreement known as the lease. The freehold is retained by the landlord, who is responsible for the upkeep of the fabric of the building and the communal areas and for providing buildings insurance. Leases can impose many restrictions on homeowners: often they can't keep pets, install a satellite dish or have window boxes, for example.

But the real problem comes at the end of the lease, when ownership of the property reverts to the freeholder. The Royal Institution of Chartered Surveyors warns that once the lease has fewer than 60 years left to run, the value of the property also declines as potential purchasers will be put off. Sometimes a lease can be extended but this can be expensive.

An existing group of leaseholders will be able to convert their ownership to commonhold but this too will be expensive and complicated, especially if they live in a big block. They will have to purchase the freehold jointly before applying to convert it to a commonhold.

And as there is no obligation on the landlord to convert the building to a commonhold, the leaseholders may not get any further than this.

Before buying a commonhold property or converting your existing lease, you should think carefully about what this implies. Although you will have more of a say in the running of the building than a leaseholder, you won't be able to do exactly what you want. All flat owners will have duties and obligations as members of the commonhold association. Members will be obliged to attend and vote at meetings and they will be involved in decision making, which could lead to tension and disagreements.

But while a commonhold property will take up more of your time than a leasehold arrangement, the benefits may outweigh the downside. Flats should be more valuable under the new system because they are no longer a diminishing asset. And their owners will have no ground rent to pay.

For general advice on commonhold, contact Lease on 0845 345 1993 or go to www.lease-advice.org

HOW TO AVOID BEING FLEECED ON THE LEASE

If you've no option but to purchase a leasehold, this needn't be a problem as long as the lease is well written and the building properly managed. Find out whether this is the case before you buy by taking the following steps:

* Make sure you understand your rights and obligations as stated in the lease. Your solicitor will check it during the conveyancing process; you should do the same. If there is something you don't understand, ask your solicitor to explain it.

* Make sure the lease is long enough for you to be able to sell the property when you want to move on. Ninety-nine or 125 years is fine; anything less than 60 years isn't.

* Managing agents will run the building on behalf of the freeholder. Find out who they are. Do they have a reputation for being unfair?

* Ask other leaseholders what their experience of the landlord/managing agent has been. You can, of course, ask the person who is selling you the flat, but they may not be truthful if they've had problems with the agents and are hoping for a quick sale.

* Find out what the service charge was for the previous two or three years. Ask the vendor to provide evidence of their payments, in the form of receipts, to ensure there are no outstanding charges.