The Effect of Service Charges on
Property Values
Robert Wood
Solicitor and Notary Public
What is a service charge?
Cost of maintenance and insurance
Cost of Qualifying Works
Cost of Qualifying Long Term Agreements
ss.18 & 19 LTA 1985
High Service Charge Effect
Lower capital values
Inability to obtain a mortgage
Increased personal debt
Arrears leading to debt recovery action
Delapidation
Managing agent’s reputation
1
Rent Review Clauses
Many types of rent review
Rent review to value of property
Rent review to rack rent
Onerous ground rent – lower capital
values, poor saleability, unmortgagable
Lease extension too expensive
CML handbook 5.10.7
Various versions according to the specific
mortgagee
Solicitors should read lease
Solicitors liable to mortgagee
Solicitors often watch their backs and refuse
to complete – property not saleable!
Rent Review
Capping clauses
2/3 rateable value
Rent Act 1977
Before 15 January 1989 (Sch 1, para 1,
Housing Act 1988)
The lease
2
Lease Extensions
High ground rent will increase premium
Average yield rate is 6.45%
Deferment rate constant at 5% since
Sportelli, some now 6%
125 - 999 year leases - lower yield rates
Freehold Purchase
Blocks of flats - 1993 Act
Leasehold houses - 1967 Act
Onerous rent review clauses can place
freeholds beyond the reach of lessees
But do they have a choice not to
enfranchise?
999 Year Lease to Freehold
Peppercorn ground rent
Zero premium – will landlord accept
this?
Use insurance commissions – capitalise
LVT decisions back this approach
3
Maple House, 149 Tottenham Court Road
London W1T 7BN
Tel: 0845 345 1993
Fax: 020 7383 9849
Email: [email protected]
Website: www.lease-advice.org
4