When William the Conqueror invaded our fair shores in
1066, like all good kings, he needed to buy loyalty and raise cash to build his
castles and armies. He did this by feudal law system and granted all the faithful
nobles and aristocrats with land. In return, the nobles and aristocrats would
give the King money and the promise of men for his army (this payment of
money and men was called a ‘Fief’ in Latin, which when translated into English it
becomes the word ‘Fee’… as in ‘to pay’).
These nobles and aristocrats would then rent the land to
peasants in return for more money (making sure they made a profit of course)
and the promise to enlist themselves and their peasants into the Kings Army (when
requested during times of war). The more entrepreneurial peasants would
then ‘sublet’ some of their land to poorer peasants to farm and so on and so
forth.
The nobles and aristocrats owned the land, which could be
passed on to their family (free from a fee i.e. freehold), while the
peasants had the leasehold because, whilst they paid to use the land (i.e.
they ‘leased it’ which is French for ‘paid for it’), they could never own
it. Thus, Freehold and Leasehold were born (you will be pleased to know that in
1660 the Tenures Abolition Act removed the need of Freeholders to provide Armies
for the Crown!).
4.3 million
properties in the UK are leasehold
… and 884 properties in Neath are leasehold. By definition, even when
you have the leasehold, you don’t own the property (the freeholder does). Leasehold
simply grants the leaseholder the right to
live in a property for 99 to 999 years. Apart from a
handful of properties in the USA and Australia, England and Wales are the only
countries of the world adhering to this feudal system style tenure. In Europe
you own your apartment/flat by using a different type of tenure called Commonhold.
The average price paid for leasehold properties in Neath over the last year is £101,125.
The two biggest issues with leasehold are firstly, as each year goes by
and the length of lease dwindles, so does the value of the property
(particularly when it gets below 80 years). The second is the payment of
‘ground rent’ – an annual payment to the freeholder.
Looking at the first point on the
length of lease, the Government brought in the Leasehold
Reform Act 1967, which allowed tenants of such leasehold
property to extend their lease by upwards of 50 years. However, this was very
expensive and as such only kicked the can down the road for half a century (when
the owner would have to negotiate again to extend another 50 years – costing
them more money, time and effort).
Ground
rents on most older apartments are quite minimal and unobtrusive. The reason it
has become an issue recently was the fact some (not all) new homes builders in
the last decade started selling houses as leasehold with ground rents. The
issue wasn’t the fact the property was sold as leasehold nor that it had a ground
rent, it was that the ground rent increased at astronomical rates.
Many Neath homeowners of leasehold houses are presently
subject to ground rents that double every 10 years.
That’s okay if the
ground rent is £200 a year today, yet by 2121, that would be £204,800 a year in
ground rent, meaning the value of their property would almost be worthless in
100 years’ time. One might say it allows
for inflation, yet to give you an example to compare this against, if a Neath leasehold
property in 1921 had a ground rent of £200 per annum, and it increased in line
with inflation over the last 100 years, today that ground rent would be
£9,864 a year.
This is important because the
majority of leasehold properties sold in Neath during the last 12 months were terraced
houses, selling for an average price of £95,800.
So,
without reforms, the value of these Neath homes will slowly dwindle over the
coming decades. That is why the Government reforms announced recently will tackle
the problem in two parts.
Firstly, ground rents for new property will effectively stop under new
plans to overhaul British Property Law. Under the new regulations, it will
be made easier (and cheaper) for leaseholders to
buy the freehold of their property and take control by allowing them the right
to extend the lease of their property to a maximum term of 990 years with no ground
rent.
Secondly, in the summer, the Government will create a working group to prepare the property market for the
transition to a different type of tenure. Last summer the Law Commission urged Westminster
to adopt and adapt a better system of leasehold ownership – Commonhold. Commonhold rules allow residents in a block of apartments to own
their own apartment, whilst jointly owning the land the block is sitting on
plus the communal areas with the other apartment owners.
These potential leasehold rule changes will make no
difference to those buying and selling second-hand Neath leasehold property.
Yet, if you are buying a brand-new leasehold property, most
builders are not selling them with ground rent (although do check with your solicitor).
The only people that need to take any action on this now are people who are
extending their lease. If you are thinking of extending the lease of your Neath
property before you sell to protect its value, your purchaser may prefer to buy
on the existing terms and extend under the new (and better) ones later (meaning
you lose out).
Like all things – it’s all about talking to your agent and
negotiating the best deal for all parties. Should you have any questions or
concerns, feel free to pick up the phone, message me or email me and let’s chat
things through.
