Magazine article Management Today

Less Freedom for the Freeholder?

Magazine article Management Today

Less Freedom for the Freeholder?

Article excerpt

If you've ever owned a leasehold you'll know that you have a freeholder out there... somewhere. If you know and like your freeholder, you're lucky. For many leaseholders, freeholders are anonymous, shadowy figures. Contact often comes only via a charge for ground rent or a large bill for building maintenance, collected by a managing agent.

The least fortunate leaseholders are victims of inadequate protection against a new generation of 'mega-landlords'. Elements of the country's less scrupulous investors have been going around snapping up large numbers of freeholds of blocks of flats, then dumping huge service bills on their hapless tenants. New Government proposals, likely to come into effect this summer, will give leasehold home owners better protection against such caddish behaviour.

Several million houses and flats in England and Wales have leaseholds. The system was started by the aristocratic owners of estate villages. They feared the peasants wouldn't look after their buildings properly and decided it was better to arrange the repairs themselves, then send out the bill. Today's freeholders are similarly obliged. Ian Read, the property manager at Close Brothers, notes that it is all too easy to get seduced by the returns on holding a freehold 'without realising the amount of work involved in running the thing'.

That said, the attractions of multiple freeholding are many for those with cash to spare. It can be a wonderful nest egg for the nearest, the dearest and those yet to be born. The landlord has the right to collect ground rent from tenants during the whole term of what may be a very long lease. And when the lease is up, the property reverts to the freeholder--a great present for a lucky descendent.

But the attractive yield is the main lure for freehold investors. David Glass Associates is a reputable firm in the freeholding business: It owns the freeholds on around 13,000 flats, and, says, David Glass: '[Freeholds] produce around 11.5% to 12% a year at the moment. About 10% comes from ground rent.' Many leases oblige the freeholder to arange insurance for the building, but this allows him Or her to earn a fat commission from the insurers. …

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