A leasehold enfranchisement expert wants government action over what he calls the "forgotten casualties" of the recent ground rent scandal.
Louie Burns, managing director of Leasehold Solutions, says the goverrnment should tackle the issue of informal lease extensions undertaken for leasehold flats.
"The implications of doubling ground rents from informal deals on leasehold flats are a huge scandal on a much greater scale than leasehold houses. However, the scandal of informal deals has received virtually no media nor political attention and many flat owners remain completely unaware of the trap they are falling into” he claims.
"Hundreds of thousands of flat owners in England and Wales have already been affected. I estimate that up to 50 per cent of all lease extensions carried out over the past 25 years have been via informal deals."
Owners of leasehold flats have a legal right to extend their lease by an additional 90 years and to reduce the ground rent to zero. Once the extension is completed this strips out any future income from ground rents and lease extensions for the freeholder.
"Freeholders really don't want flat owners to exercise their legal rights, because if they do then the freeholder will lose out on tens of thousands of pounds in future income. By extension, if flat owners do use the legal route then they can save themselves huge amounts of money that they would otherwise have paid to the freeholder” explains Burns.
"To protect their future income, many freeholders offer flat owners informal deals which they claim will save the flat owner time and money. However, these deals will usually only extend the lease back up to 99 or 125 years - rather than adding an additional 90 years under the statutory route” he says.
"Worse still, they often include onerous ground rents which can be £500 per year linked to an aggressive accelerator, for example doubling every 10 years. This is evil genius by freeholders, as in less than 20 years the flat owner will once again need to extend their lease, except that now the onerous ground rent means the flat owner has to pay considerably more for the extension.”
Burns says there are instances of freeholders making an extra £70,000 over 15 years, all because the flat owner wanted to save a few hundred pounds by avoiding the statutory route.
Flat owners that accept an informal deal have no protection under the law and have no opportunity to remove unfavourable clauses in their lease terms, including onerous ground rents and service charges.
He wants the government, trade bodies and the media to give attention to this issue as it did to the recent ground rent scandal involving new build houses.