Landmark Leasehold Case may cause concern in the UK property market

The court ruling this week regarding the cost of extending lease being halved and buying freeholds may well be an excellent result for property freeholders in England and Wales (approximately 2.1 million) in fact they could become considerably cheaper in the future. First time buyers often do not take into account ground rent, maintenance charges and other what seem insignificant charges, in the excitement of buying a new home, then finding they do not have the resources to meet increasing charges by landlords or freeholders.

Courts are currently ruling on cases on the costs of extending leases by landlords, these landlords could well see a fall in the value of their held assets.

In London there are 490,000 leasehold properties which have less than 80 remaining on their leases, if the courts rule in favour of the lessees i.e. extending leases back to 99 or 125 years could mean that the cost to the leaseholder could be as much as 31% less. In the particular case that the courts are ruling on is a small flat in Chelsea, the remaining lease term being less than 23 years and the freeholder is asking for £420,000 to extend the lease.

London estates will surely be hardest hit, however in all parts of the UK people including pensioners are being asked ridiculous amounts for lease extensions which are simply not affordable.

Tom Roberts of FJP Investment has added “this particular case is causing a whole raft of upheaval within the market and we are keen to see an end for the sake of everyone else”.

However, we must take into account some of the freeholders are major charities and not just wealthy landowners, one of the charities is in fact the Welcome Trust, who donate surplus funds to cancer research.

If the current appeal is successful, leaseholders will find they may well pay less to extend their leases and freehold purchases. There has been a big push to reform these outdated practices and hopefully we are now looking at an end to it.

If the current court case goes in favour of the leaseholder, there is no doubt it will go to appeal however, government is expected to review the situation and we may well expect a result at that level.

It is only a matter of time and if the conclusion is how we think it might be, this could be a real game changer for freeholders and leaseholders within our property market. Ground rent and maintenance charges are every important and should factor into your calculations when going out and purchasing property.

FJP Investment is a team of investment specialists sourcing a wide range of investment opportunities both in the UK and overseas. Products include the new release of UK based care home investments.

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