25 April 2017

The hidden administration costs on Leasehold Properties

With property prices increasing throughout Herefordshire and the UK, it is becoming more and more common for those looking to get on the property ladder to invest in leasehold properties. These are typically cheaper to buy than a freehold properties. Buying a leasehold does mean you pay an annual service charge and maybe a ground rent, but in terms of initial affordability, leasehold properties can be appealing.

However, when it comes to buying or selling a leasehold property, the administrative costs involved can be higher than you may expect. The Conveyancing Association has long been campaigning for the way leasehold transactions are dealt with to be changed due to increased costs and time involved in reaching completion. They have produced a helpful guide to selling a leasehold property which can be found here: http://www.conveyancingassociation.org.uk/download/2517/

Their research has shown that the average time it takes to obtain the necessary information for the sale of a leasehold property is three weeks but in some cases can take over eight. They estimated it costs buyers an average of £350.00 for a seller’s leasehold information pack, with some costs exceeding £800.00. Some Landlords also impose charges for other administrative tasks such as providing their consent to sell a leasehold property, carry out alterations, supplying information amongst other things.

Under the law, there are two different types of administration charges: “Fixed Administration Charges” defined by the lease of by a formula contained in the lease, and “Variable Administration Charges” which are those charged entirely at the discretion of the Landlord.

In both cases, a “reasonableness” test is applied and, if the charges are not deemed to be reasonable, they can be challenged by a Tenant at the Land Tribunal. With Fixed Charges, the Tribunal can decide that the lease terms are not reasonable and ought to be varied. With a Variable Charge, the Tribunal can also make the decision as to whether the payment is reasonable.

But how likely are you to succeed in this application? Cases have been tested in the Tribunal and the reasonableness of charges seems to be on a case by case basis and includes the amount of work involved in the Landlord having to provide the information requested. In Holding and Management (Soltaire) Ltd v Norton, the Tribunal held that £40.00 was a reasonable fee for providing a consent, but in Proxima GR Properties Ltd v McGhee, it was held that £95.00 was a reasonable fee. The latter was because the Landlord had requested information from the Tenant relating to the consent required and had considered matters more thoroughly – thus justifying the higher cost.

Proportionality can become an issue when dealing with leasehold fees and this may be something you consider when considering whether it is worthwhile challenging them. Unfortunately, when you are looking to buy or sell, it may not be in your interests to start up a challenge with your landlord or managing agent.

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About the Author
Mary Wathen, Partner, Head of Agriculture and Rural Affairs Team
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