Should I walk away from what feels like a leasehold trap…?

[ArtfulBlueMentor]

Thinking of putting an offer in on a leasehold flat (obviously thinking carefully as aware of the importance of checking thoroughly….)

Struggling to find many examples of the below (dodgy feeling) scenario - would really appreciated any views or thoughts on it.

The flat is part of 15 flats, all used to be offices and converted to residential about 10 years ago. Freehold for all owned by the same person - and all flats currently tenanted. He also owns the management company.

Two of the flats have gone up for sale as leasehold. I’m interested in one for many reasons, but am hesitant as keep reading about leasehold management fee nightmares/spiralling sinking funds and so on.

I gather from the agent that the management fees/sinking fund will be determined by size of property, which seems fair. BUT - I don’t know where that would place me in terms of things like “right to manage” and or any major works, as obviously the tenants renting the other 13 flats don’t contribute to either of these, presumably the freeholder pays these things.

i keep reading about right to manage and it needing a majority of leaseholders to activate. I’ve been told there are plans to refurbish the other units and put them up for sale, but that seems vague.

So I guess my instinct is to run a mile - it seems uncommon to me to have only two leasehold the other 13 owned by the same person/landlord/management company. But it’s a lovely place and in many other ways perfect.

What do people think, does it sound dodgy, or is it potentially more common than I can currently find examples of - and what would be worst case scenarios/questions to ask….?

Leasehold per se isn't an issue but this particular situation sounds bad.

Converted offices

Freehold and management company owned by one individual.

All flats bar 2 also owned by this individual.

It is going to be managed for his benefit and his benefit alone.

Find something else.

I would go and chat to a few of the occupiers and ask them for their views.

Yes - you’ve concisely confirmed my reservations - the numbers worry me, along with the freeholders vast majority. Under pressure to find somewhere but this does seem an unusual set up.

Yes I may do this - though I’m not sure the tennants will have much experience of things like management fees/sinking fund and so on if they aren’t having to contribute. I suppose I worry what if me/and or one other leaseholder were somehow paying into the sinking fund but with very little transparency as seems too ripe for exploitation somehow. I’d be worried that the freeholder might carry out works on the development as a whole that would benefit the other properties but somehow 1 or 2 of us paying for it!

I’d be wary of that. I own a flat in a leasehold building and for any big works the leaseholders have a vote each on contractors etc. you’d be at the whim of the freeholder with them owning so much of the building.

Is it the person who owns the other 13 selling?

Thank you - it feels like my gut is there, but my lack of experience and knowledge isn’t quite clear on why, but this does make sense as would certainly lose a vote with only two leaseholders as it stands!

The way it’s been presented is that the freeholder converted the offices to flats a decade ago and has since been renting them out, but that he is now refurbishing them with a view to selling them.

BUT - the one I like and one other are the only ones currently listed for sale, and one has just seemingly been re rented - so it feels like there is nothing to stop him changing his mind once both sold (or maybe even one…)

i hadn’t realised re voting for works and so that does seem a ridiculously vulnerable position to be in (1 or 2 vs 13….!) Thank you

And yes - freeholder currently owns all, two up for sale

Hmmm and sometimes where the freeholder is a builder contracts can mysteriously be awarded to his own firm.

As it stand there is no way you would get RtM as you need a majority of leaseholders to vote in favour.

I'd be assuming that the developer is planning to use the proceeds of the flats he sells to gradually do up and sell the rest. If so, he should be willing to listen to your concerns. There is a really easy fix to your worries, which is to say that the choice of contractor to carry out the works need to be approved not only by a majority of the number of units (a unit can be defined as a certain square footage, so larger flats would represent more units than smaller ones) but also a majority of the individual owners.

That way, if he owns all the building bar two flats, one of the owners of the sold flats has to agree, and once he has sold all the flats it will pretty much revert to being the same as the majority of the number of units (will give a bit more power to owners of smaller units in the long term, which is not that bad imo given that they can be more budget constrained).

I would avoid. My son and DIL bought a flat and when they came to sell it the leaseholder couldn't be contacted and in the end they had to take it off the market. Despite trying to contact him he refuses to engage so they are stuck with a flat they don't want!

Please avoid.

Leasehold is a potential nightmare to start with: service charge, ground rent, dodgy management companies, high cost of extending lease, having to pay large sums for repairs to the building...

It sounds even more problematic in this case if the flats are all owned by one person who will have all the power. The cost of any structural repairs would be divided between that person and the only two leaseholders so you could end up with a huge bill...

Having had a leasehold flat in London, I would say try to get a small house, even if that means moving to a new area if you can.

Reforms of leaseholds have been promised for years and nothing is happening still.

I live in a leasehold similar to what you have described- there are 15 flats in the building, about 3 of us are owner residents, the rest are rented. The ones that are rented are owned by people who do not live here and rent them out.

When we have had major works, the freeholder has been unable to collect monies from everyone- we and the other owner residents paid but, but it was impossible for them to collect from the landlords who don't live here as they didn't really care! As such the works never got completed, now they're talking about doing them again but costs have gone up significantly.

I would say if one person owns all the rented flats then you'd have a better chance of raising funds for major work, as it's just one person to contact. Are you sure he owns all of those flats, and they're not owned by third party landlords as per mine?

All that being said- we are in the process of selling (our buyers are aware of all of the above and we have negotiated money off accordingly), we live in a desirable part of London so we had a lot of people wanting to buy but we had to make a considerable loss due to the major works issue.

I wouldn't rush to buy a leasehold again, however in London and other big cities that's not always an option!