The rise of home working has brought to light a legal snag which might restrict some leaseholders from using their property for business. Stephen Ward explains it’s yet another incentive for buyers to check the small print…
Prospective buyers are being advised to check the small print after it emerged that people who work from home could be violating the terms of their property’s lease.
This highlights again why your conveyancer needs to know exactly how you plan to use your property to ensure that there are no obstacles to that.
Working practices have changed significantly as a result of the pandemic, with many more of us continuing to work wholly or at least partly from home.
However, a legal academic made headlines recently after suggesting that half of all properties in England and Wales could be subject to restrictive covenants preventing them from being used for business.
Michael Poulsom, a senior lecturer at Manchester Metropolitan University Law School, told the Guardian: “Covenants which prohibit the use of residential property ‘for the purposes of a trade of business’, ‘otherwise than as a single private dwelling house’ are very common in both freehold and leasehold titles, and whether working at home breaches those covenants remains in large part unsolved.
“This is of particular concern for leasehold owners, against whom the landlord’s remedy of forfeiting the lease is a possibility.”
Poulsom offered some reassurance that, while the risk was not removed entirely, it is unlikely that landlords will take legal action against people using laptops at their kitchen table.
But, he added: “Once you get into the situation where people are doing something which is public facing, with the result that customers start turning up at the property or the amount of traffic in the street increases, the business activity starts to become more visible, more intrusive. I think that is potentially a risk.”
Working from home: Know the rules of your lease
Flouting the terms of your lease can have serious consequences including the worst-case scenario of forfeiting your property, and it’s more easily done than you might think.
Leases frequently contain strict conditions, including that the property cannot be used to run a business, can only be occupied by a single family or cannot be used as a short-term let. The latter has come to light more in recent years through people wanting to turn their property into an Airbnb.
There are other reasons why it’s important to know what’s in your lease – how much ground rent you might have to pay, for example.
As opposed to freehold where you own the property and the land it stands on for an unlimited period, with leasehold you don’t own the land and only own the property for the length of your lease, during which time you will be charged ground rent.
This is typically a peppercorn annual charge of around £50, but there have been instances where it escalates, say to double the amount every 10 years.
Companies have also been accused of exploiting leaseholders, for example, by trying to deliberately confuse them and, in some cases, charging administrative fees for collecting payment.
Leasehold reform has been on the cards for a long time to stop people falling victim to the unfair practices of freehold management companies.
The Leasehold Reform (Ground Rent) Act 2022, which was introduced earlier this year and is due to come into force in 2023, will improve the situation for some.
Freeholders of new, qualifying long residential leasehold properties in England and Wales will no longer be able to charge onerous ground rents and will be banned from charging administrative fees for collecting it, with failure to comply carrying a heavy fine.
As leases expire, the government has also promised that people will be able to extend them for up to 990 years with no ground rent, but it is not clear when this will take effect.
For now, and for those already living in or looking to buy properties that fall outside of the Act, the existing rules apply. It’s important to know them as current laws state that if you fail to pay ground rent or your lease expires, the property then passes to the freeholder.
Buying a home: Check the small print
If you’re unsure about the terms of your lease, check with the landlord or management company and, if necessary, seek legal advice. Those looking to buy a leasehold property should direct questions to their conveyancer.
When researching conveyancers, it’s a good idea to ask what experience they have with leasehold properties. As always, choosing a regulated conveyancer will also afford you protection in the unfortunate event that anything does go wrong.
Look out for our secure badge on their website. You can also find a list of CLC-regulated conveyancers here.
Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancers
