In the past decade, almost half the people who bought a leasehold house had no idea what they were getting into, according to a new survey from the National Association of Estate Agents (NAEA) Propertymark.

Were Home-Buyers Misled?

The controversy which led the government to crack down on “unjustified” leaseholds instigated the research. Homebuyers had many feel that they were mis-sold because of the insane fees involved. NAEA had warned about the trappings of a leasehold contract and that most buyers have no idea until it’s too late.

NAEA Propertymark surveyed more than 1,000 people who had bought a leasehold house and found that 94 per cent now regret their decision and 62 per cent believe it was mis-sold.

Thousands of people have fallen into the new property trap. Leasehold house owners are charged high fees if they want to make changes to their homes as well as exuberant ground rent. The chief executive of National Association of Estate Agents Propertymark, Mark Hayward said within a few years of initial sales in most instances, the freehold is sold onto a third party.

He explained that, “This means the terms in the contracts homeowners have signed will change, and any negotiations are made more difficult.”

Because it offered housebuilders an extra income stream, they started offering more and more new leasehold houses. This stream of income is from selling on the leases to investment companies or through ground rent.

Taylor Wimpey, Image from New Home Blog

Taylor Wimpey, one of the UK’s biggest house builders, was forced to set aside £130m last year to compensate home buyers. Many of the burdensome and expensive rising ground rents have now been outlawed.

Forms of Home Ownership

Freehold and leasehold are two fundamentally different forms of legal ownership. There is a big difference between a home that is worth buying and one that isn’t, although estate agents tend to gloss over it.

Having a lease from the freeholder, sometimes called the landlord, to use the home for a number of years is called leasehold. There are two different kind of leases—long term and the short leases. A freeholder has a contract with the leaseholder which states all the legal rights and responsibilities of either side.

Freeholders usually receive an annual “ground rent” from leaseholders. It is the responsibility of the freeholder to maintain the building including the staircase and entrance hall as well as the roofs and the exterior walls.

Permission for any significant works done to the property must be obtained by leaseholders, and they may also face other restrictions such as not subletting or not owning pets. Bills like maintenance fees, annual service charges and their share of the building’s insurance will have to be paid by the leaseholders.

To own the building and the land it stands on the outright means you own the freehold. In the land registry, it shows your name as ‘freeholder,’ owning the ‘title absolute.’ It is a preferred option to own a freehold for most people, as it doesn’t require the payment of annual ground rent, then maintenance won’t be an issue as you often won’t find a freeholder who fails to maintain the buildings.

A spokesman for the Ministry of Housing, Communities and Local Government, who was quoted by the BBC, said it was:

“unacceptable for home buyers to be exploited through unfair and abusive practices within the leasehold system.”

He also said to support existing leaseholders to make buying a freehold or extending a lease “faster, fairer and cheaper” the government was also working with the Law Commission.