Article Summary

In our third and final article on the common pitfalls of purchasing leasehold investment property, we explore some of the problems that can arise when buying from disreputable developers or agents.

If you’re investing in a flat, apartment or new-build house, you may find that they are under leasehold ownership terms. Leasehold is a legal agreement whereby you own the property but not the land it resides upon. The land remains the ownership of the freeholder or landlord.

What can happen?

If you end up in the unfortunate position of having invested in a leasehold property from a disreputable developer or agent, you could be faced with issues ranging from broken promises to broken buildings.

Such developers and agencies can promise rents that are in fact impossible to achieve, leaving you out of pocket. They can also hide unscrupulous clauses in the lease contracts that allow doubling ground rents and large service charges. It can be difficult and costly to get out of such contracts, creating a large bill and massive headache.

Some disreputable developers will try and save money by cutting corners on the building work. This can result in serious structural problems with the property. These can make it unlivable and may not be covered by your warranty.

One of the more well-known ways that developers have cut costs in the pasts is through the use of unsafe cladding. As a result of the Grenfell Tower disaster the UK Government is replacing unsafe cladding in residential buildings. However it is still difficult to buy or sell properties in which the cladding hasn’t yet been replaced, potentially leaving you in financial and legal limbo.

Another issue is erroneous charges that are difficult to claim back. There have been cases of leaseholders being over-billed for inaccurate service charges and utilities. These are usually the result of the long and unchecked list of subcontractors employed by such companies.

How to avoid disreputable developers in leasehold property investment

The best way to avoid unscrupulous developers and agencies is to do your due diligence. Check for reviews, case studies or customer testimonials and decide whether they are reputable or not. Research any bad experiences to ensure you don’t have to go through the same thing.

Look into the area. Are the rents you’ve been quoted achievable? Is the area popular? Does it attract the kind of tenants you want? Don’t just take the seller’s word for it.

Perhaps most importantly, make sure you check all contracts carefully for hidden clauses. It’s best to ask a legal or property professional to read through all agreements before you sign them too. You don’t want to find yourself stuck in a damaging contract you can’t leave.

Get in touch

Take advantage of the booming rental demand and find out how to make a Leeds property investment or where to buy an investment property elsewhere in the UK. Contact North Property Group today to learn more.