Beware the freeholder

Until recently we owned a flat in a well known prize winning development. Beautiful building – highly sustainable – but a great pity about the way the management of the blocks was run.

Conventional wisdom has it that the best way to manage an owner occupied block of flats is by granting long leases to the owners and enforcing mutual obligations (including paying for service charge) by way of leasehold covenants. Fine. With a caring sharing freeholder, everything works well.

But to squeeze more cash out of the scheme developers usually create ground rent leases (usually involving an initial rent of a few hundred pounds with provisions for increases) and flog off the resulting investment to the highest bidder.

Such firms are only interested in the money they can make – collecting the rent (fair enough) and charging exorbitant sums for various minor consents that leaseholders need to secure from time to time. (In our case they demand money for consents to let on assured shorthold terms, which are not required under the terms of the lease – and leave it for the leaseholder put them right. Fine for two property professionals like us – but not the little old lady.)

Even worse, the freeholder contracts out the management to the cheapest outfit they can find. In our case the maintenance was poor and the accounting was chaotic. So much so, that we and our fellow owners opted to run the building ourselves under right to manage legislation. We now have a firm that seems to know what it is doing, can add, communicate in English and seemingly set sensible budgets.

All the time, effort and mess could have been avoided if the developers had not been so greedy, given some thought sustainable management (possibly got the owners to manage from day one) and chosen the freeholder more carefully. If I had known what I know now – I would have thought twice about buying anything where the freehold was owned by the particular bunch of shysters we have experienced.

So, if you are buying a leasehold property, find out about how the management works in practice – and do some research on your freeholder. And if you are developing a block of flats – give some thought for the owners who will have to live with the freeholders you land them with and the management arrangements that you or they put in place.