The truth about freeholders' dirty tricks!

Leasehold Solutions has several thousand live lease extensions or freehold acquisitions in progress at any one time.

On a day-to-day basis we work against the biggest and most notorious freeholders in London and, consequently, have an in-depth knowledge of the tricks the various freeholders use to get the most money from each transaction.

Leasehold Solutions’ MD, Louie Burns, has written the following guide to some of these tricks, together with some advice on how you, the flat owner, might recognise and counter them!

Leasehold Solutions' MD, Louie Burns

Leasehold Solutions’ MD, Louie Burns

Trick #1
A huge counter offer!

As the owner of a leasehold flat that does not have a share of freehold, you do not own any of the bricks and mortar of the building. You are just renting a space inside the building by way of a lease.

When the lease of your flat runs down to ZERO you will no longer own your flat; your freeholder will.

Over the last few decades, parliament has passed a series of laws, which have given flat owners two legal rights. If you have owned your flat for two or more years you can extend your lease for an additional 90 years and reduce the ground rent to a peppercorn (zero).
This is a legal right that no freeholder can stop you exercising.

But you must compensate your freeholder when you extend your lease (or purchase your freehold).

Legally, you must make an opening offer for the cost of your lease extension and the law states that your offer has to be ‘reasonable’.

The freeholder, however, does not have the same limitations when making a counter offer; it can be as big as they like and it is often a disproportionately large amount!

Why is it unfair and why do they do it?

Firstly, the freeholder hopes that the figure will be so shocking compared to the amount your valuer advised you to expect, that you will withdraw from the transaction altogether.

Failing that, they hope that this figure stretches your expectation as to the final amount you will have to pay.

How can you counteract it?

The way to counteract this is to expect the counter offer to be ridiculously high from the outset and then completely ignore it when it arrives.

Why do we say this? In our (vast) experience, 100% of the counter offer is likely to be stuff and nonsense!

You may find that an offer of an ‘informal’ lease extension quickly follows a high counter offer (more of which later).

We highly recommend that you do not accept!

Trick #2
Freeholders completely ignore the flat owner during the six-month period of negotiation.

Why do they do this and why is it unfair?

A six-month period of negotiation is the statutory timeframe of a lease extension, and during this time, the cost of the lease extension and the terms of the lease MUST be agreed.

If not, you, the flat owner, would need to pay to make a protective application to the First-tier Tribunal (FtT) in order to extend the timeframe or else lose the legal right for a lease extension.

If the latter were to happen, there would be a further delay of 12 months before the lease extension process could recommence.  Furthermore, you would be liable for all abortive legal and valuation fees for both sets of solicitors and valuers.

The flat owner is left to pay for the application – and the fact that the delay may have been purposely caused by the freeholder is largely irrelevant!

Why do they do it?

Simply put, to be nasty.

Freeholders know that flat owners have no choice but to pay these additional fees; they also know that they themselves will never be charged or brought to task for acting in such an unreasonable way.

It is their way of punishing flat owners for daring to exercise their legal right to a lease extension and letting them know that future negotiations will be brutal.

How can you counteract it?

Negotiate how much your solicitor will charge to serve an FtT protective application on your behalf before you appoint them; your solicitor will be keen to get your new business and may be less flexible with rates once you are confirmed as a client.

If possible, try to join forces with as many of your neighbours as possible and extend your leases collectively. This way you can negotiate group discounts with your proposed solicitor and valuer.

Trick #3
Beware the ‘easy’ informal lease extension

Freeholders refuse to enter into negotiations on statutory lease extensions and will attempt to bully you into accepting their ‘easy’ informal offer.

Why is it unfair?

As a flat owner, you have a legal right for a lease extension of an additional 90 years with zero ground rent. Freeholders try to distort this right by making the statutory route seem so difficult and fraught with complications that the ‘informal’ route seems the easiest or only option.

Why do they do it?

If you extend your lease by the statutory route, your freeholder will lose their investment, your flat, and the chance to make even more money from you.

If you fall for this trick and accept an informal offer, the freeholder will make an absolute fortune from you – or future owner of the flat – for decades to come.

How can you counteract it?

Don’t accept their informal lease extension offer, even if your freeholder is telling you to!

Do your own research –  or look at other articles and blogs we have written on the subject.

Trick #4
New lease terms

Freeholders often try to introduce new terms into the lease, which will hugely favour their own interests.

Why is it unfair?

Your freeholder does not have a legal right to insert new clauses into a lease during a statutory lease extension.

They will usually try to sneak them in by ensuring the new lease is sent back to your solicitor very close to the statutory deadline. Your nominated solicitor will then have to inform you that if you do not accept the illegal terms inserted, you will have to pay court fees.

Why do they do it?

The freeholder wants to make more money from you by way of new licenses.
They may try to insert new terms relating court fees recoverable through service charges which means that if you sue your freeholder in the future (for any reason), they can add their legal fees onto your service charges even if you win!  Click here to read this horror story.

Freeholders will often include new terms that relate to breaches of lease terms and what actions are open to them as a result. Essentially they want to exert more power over you, retain the ability to charge more fees and have a better chance of getting forfeiture of your flat.

Are the new terms that they are trying to unfairly insert in your lease important?
You bet – read every new term carefully and consider the future implications.

How can you counteract it?

As stated above, negotiate fees for these applications with your chosen solicitor before you appoint them and, if possible, extend your lease at the same time as a neighbour or as a group and negotiate a group discount at the outset.

Instruct your solicitor that you will not accept onerous terms included in the lease.

It is worth remembering that if you go to the FtT to fight these inclusions you will win outright, as your freeholder is breaking the law by including them in the first place. They will never want to attend the FtT to argue their right to include the new terms – chances are they are just trying it on.

Trick #5
The cost of the lease extension.

Why is it unfair?

The freeholder is entitled to receive the combination of ground rent, reversion and marriage value, as set down by law, as the ‘fair cost’ of a lease extension.

However, they will often add a fourth element of the valuation; namely how much it would cost you to take them to the FtT to argue the much higher costs they have settled on and which they refuse to negotiate further.

This whole process revolves around the fact that the flat owner will have to pay to challenge this unreasonable freeholder. The costs of doing this are considerable.

Why do they do it?

Simply put, to make more money from you, the flat owner.

How can you counteract it?

Extending your lease at the same time as your neighbours is one of the few counter measures to this unreasonable freeholder action.

Ensure that you have negotiated group discounts for multiple applications.

It is tougher if you are not part of a group; encourage your valuer to keep negotiating and ensure that lines of communication with your freeholder are kept open.

It can sometimes work to bluff the freeholder into thinking that you are happy to attend the FtT on a point of principle; as no one actually wants to attend the FtT – it is just a big bluff.

Trick #6
Absurd Section 60 costs!

Why is it unfair?

Flat owners have a legal obligation to pay the ‘reasonable’ legal and valuation fees incurred by freeholders during this process.
These are the freeholder’s Section 60 costs.

Many of the professionals who work on behalf of the freeholder view this as a bonus and charge unknowing flat owners far too much for their services.

Why do they do it?

Some of the more unscrupulous professionals consider this to be one of the main benefits of representing the freeholder in this process – the chance to name their price for work carried out.

How can you counteract it?

Always challenge Section 60 costs!
This needs to be done in writing and submitted to the FtT by your solicitor. Generally, there is no need to attend a court hearing.

Be aware, however, that challenging Section 60 costs is not always popular with some solicitors, as they could find themselves on the opposite side of the fence a week later and have their arguments used against them in order to gain a reduction on fees.

A solicitor’s duty of care is to get the best possible deal for their client – but it may be prudent to clarify with your solicitor at the outset that you will want them to challenge any unreasonable Section 60 fees as part of the transaction.

Conclusion

We genuinely hope the above information will help you when you are extending your lease and make you aware of the tricks and pitfalls you could face in the process.

To be forewarned is to be forearmed.

Leasehold Solutions is a market leader and the largest company of its type, dedicated to helping flat owners. We are passionate, proactive and rigorous and are committed to raising awareness of the inequalities faced by flat owners and exposing the tricks used against them.

Our project team works with groups of flat owners to extend their lease as part of a group thus leveling the playing field and we are experts in every aspect of this process.

The above text is from a (very unpopular) speech Leasehold Solutions’ MD, Louie Burns, gave to the Valuers Forum, at the Law Society in November 2015.