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Leaseholders are being forced into a corner as communal bills soar, yet today's credit-crunch property prices mean they can no longer sell their way out of trouble.
Falling property prices are leaving owners of leasehold flats feeling increasingly powerless in the face of high service charges and unreasonable repair bills.
Selling up used to be a way to escape disputes over charges for which leaseholders bear all the costs, but over which they often have little control. But as property values plummet, many owners find themselves trapped. They have little option but to battle it out with their freeholder or agree to bills they consider unfair.
The impact of declining property values was one of many problems raised by leaseholders who responded to a Cash article last month exposing insurance kick-backs to managing agents.
Readers told us they were paying over the odds for all sorts of services or facing huge repair bills they could not afford.
Paul Boyce, who bought his first home just a year ago, is now considering selling it at a loss after being landed with a bill for £7,800, his share of the cost of repairs to a block of six flats in Brighton. Under the terms of his lease, half the money was due last month and the rest in September. "I hadn't realised they would ask for such big sums and I just haven't got the money," he says. "When I asked the managing agent if I could spread the cost over three or four instalments, he wouldn't budge and said he would take legal action if I didn't pay up."
Boyce, a university researcher who stretched his finances to the limit to buy his £150,000 one-bedroom flat, says the stress of finding the money has caused him to rethink the idea of owning his own home. "Suddenly it feels this isn't my flat anymore because I'm not in control of what happens here but have to pay for everything," he says. "Last month I got estate agents in to value the place. It's worth at least £10,000 less than I paid for it but sometimes I think I'd be better off selling anyway."
Leaseholders have no say over which company looks after their property, and when a freeholder switches managing agent this can have a big impact on the amount flat owners are charged.
Sally Penrose saw her annual service charge leap from £1,040 to £1,888 when, in 2007, management of her flat was transferred from a small management company to Crabtree Property Management, which manages more than 9,000 properties. Penrose claims that the Victorian conversion, comprising her flat and just two others, is being over-managed and residents charged for services they do not need.
"Crabtree have imposed new charges for things like auditing and accounting, health and safety and bank fees," she says. "They want to carry out monthly on-site inspections and plan to install a separate electricity supply for two small lights in the hall, as well as a 'safety light' on the landing at a cost of £615 and £316 respectively. We are sick of these ridiculous charges but will probably end up paying them because you don't really have any control."
Crabtree was given the opportunity to respond but declined to comment.
One option for unhappy leaseholders is to take their case to the Leasehold Valuation Tribunal, which adjudicates on whether service charges, repair bills and other fees are reasonable. It considers around 2,000 cases a year and often reduces charges it deems excessive.
However, unlike normal courts, each party in an LVT case has to pay its own costs, which can easily spiral. "The sum in dispute can sometimes be dwarfed by the amount leaseholders end up paying in fees to lawyers, surveyors, engineers, accountants and other experts," says Nick Kissen of the Leasehold Advisory Service. "They can't know in advance how much these costs are going to be and they can find themselves up against a QC and other professionals employed by a freeholder with deep pockets and a money's-no-object attitude."
To make matters worse, Kissen says, freeholders have begun to include clauses in leases that give them the right to use the service charge to claw back any legal costs they incur as a result of an LVT case.
Some flat owners are taking advantage of changes in the law introduced since 1993 that give them the right to get together with other leaseholders either to buy the freehold or to take over management of their building.
The "right to manage" route is relatively straightforward and much cheaper than buying the freehold. All that is required is for half the qualifying leaseholders in a block to set up a right-to-manage company, and for the freeholder to be informed of the decision.
Both buying the freehold and exercising the right to manage can be a good solution, but they are not a panacea.
"We see a significant number of right-to-manage and joint freehold companies coming to LVT to sort out disputes where one group of residents is at loggerheads with another," says Donald Brown of the Residential Property Tribunal Service. "In one case a group of leaseholders in a right-to-manage company wanted to refurbish their block while another group didn't, and they couldn't agree."
In 2002, the government introduced "commonhold", a more democratic form of home ownership intended to help solve excessive service charges and other problems associated with leasehold. Each flat owner would own its "unit" outright but also have obligations to a commonhold association to which all residents in the block would automatically belong.
But the scheme has failed to take off. By June 2008 there were only 14 commonhold developments in Britain, compared with 1.6m leasehold properties.
"It was championed by government as an end to feudalism," says Chris Baker, who represents the Home Builders Federation. "But government has not promoted commonhold or sorted out teething problems which have made the scheme unattractive to developers. For now it looks as if we're stuck with leasehold."
Understand your lease?
Put simply, a lease is a contract between the owner of a leasehold property and the freeholder, who owns the land on which the property stands.
The freeholder can be an individual or, if you live in a big development, a residential management company.
In general, the lease sets out your responsibilities as property owner (typically including an obligation to pay ground rent, service charges and conditions on the use of the property) and the freeholder's responsibilities (to provide buildings insurance and maintain all common parts). Both parties will have rules and regulations to abide by; so leaseholders may find restrictions on what they can place on their balconies while freeholders may have responsibility for arranging rubbish collection or mowing a communal lawn.
Your solicitor should go through the lease with you when you purchase your property. Paul Marsh, president of the Law Society, says the main things to look out for are the length of the lease; the insurance arrangements; the service charge costs and whether or not you are permitted to sublet. If you don't understand parts of your lease, call the Leasehold Advisory Service.
Where to get help
• The Leasehold Advisory Service: lease-advice.org, tel 020 7374 5380;
• Residential Property Tribunal Service: rpts.gov.uk, tel:0207 446 7700;
• The Federation of Private Residents' Associations: fpra.org.uk, tel 0871 200 3324.
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