Selling a leasehold property where there is a problem or dispute

 If you are selling a leasehold property, as part of the standard conveyancing process, your buyers will expect you to provide certain information about your property. There are set forms for this, including one which relates specifically to leases that asks if you are aware of any problems regarding the service charge or any complaints about your landlord, the management company, or any neighbour.

Unfortunately, occasionally disputes occur and usually these can be resolved over time. But what if you are keen to move, can you still put your home on the market and hope to find a buyer at the right price?

‘It is important to be realistic in your expectations if there is a problem with a leasehold property,’ cautions Louise Davis, Associate in the Residential Property Department with Ware & Kay incorporating Pearsons & Ward. ‘Buyers will naturally be wary of buying into an ongoing dispute, so they will need reassurance and any sale will require careful handling.’

Here she answers some of your questions.

How much must I tell a buyer?

You might have heard the expression ‘caveat emptor’, meaning the buyer needs to beware, but if you withhold information that could influence your buyer’s decision, you could be liable for misrepresentation.

Your buyer could reject the sale contract and require you to compensate them for any loss. So, if you are in any type of dispute with your freeholder, or management company, tell your solicitor who can advise you about what you must disclose and how best to deal with it.

When asked if you know of any problems, in theory you could refuse to answer these questions. However, a buyer is likely to find this suspicious and it could jeopardise your transaction. Sometimes sellers are tempted to tell a half-truth. This too can easily backfire, undermining the buyer’s confidence when they discover the full story.

If there is a problem, it is often better to be open and to tell the other party what you are doing to fix it.

Do I need to resolve any outstanding issues before selling?

Most buyers will view a historic dispute more favourably than an ongoing one. So, ideally, you should resolve any dispute before putting your property on the market. Your solicitor can advise whether this is possible in your desired timescale and, if so, how best to achieve it. If necessary, we can introduce you to a colleague who specialises in dispute resolution.

Sometimes, it may not be possible to resolve an issue before you need to sell. For example, you may be trying to exercise your statutory right to extend your lease, but your landlord is slow in responding. Showing you have complied with all the legal requirements and that your buyer will be able to continue your application to extend the lease should help alleviate their concerns. Alternatively, you could agree that the buyer retains part of the purchase price pending the successful outcome of the application to extend the lease.

There are no one-size-fits-all solutions. So, it is important to have a solicitor on board who is experienced in complex property transactions and who can give you their close personal attention.

Should I withhold payments to my landlord?

The level of service charge, and non-provision of services, are some of the most common complaints by leaseholders. If you are not happy with these, it is easy to feel tempted to withhold some of your service charge payments. There are some limited exceptions, but generally you should ensure your service charge and ground rent payments are up to date. Failure to do so is likely to put you in breach of your lease terms.

Any buyer will want to know that there are no bills outstanding. Not only could this affect their security, but they will also want to be confident the landlord will not look to them to make up any shortfall.

Paying your bills up to date does not prevent you from challenging the reasonableness of the service charge separately, provided you follow the correct procedure.

There may be some circumstances in which you could lawfully withhold payment. For example, if your landlord has failed to carry out repairs they are obliged to do under your lease, and you have spent money in effecting those repairs yourself. Before doing so, however, ask your solicitor who will check that your lease does not exclude this right and discuss with you how this could impact any sale.

Do I need my landlord’s agreement before I market the property?

The law provides leaseholders with some protection against unreasonable landlords in certain situations. For example, where your lease contains a restriction against alterations or transferring your property without your landlord’s consent, that consent cannot be unreasonably withheld or delayed. If your landlord unreasonably withholds or delays consent, then it is possible to apply to court for a declaration to this effect. Your landlord may then be deemed to have consented. Sometimes, a solicitor’s letter reminding them of this possibility is enough to have the desired effect.

Unfortunately, though, the law in this area is complicated, with different pieces of legislation applying in different cases. Talking things through with your solicitor will help you understand your options and the potential impact on any sale.

Do I need to get retrospective consent to alterations?

If your lease contains a restriction on alterations, and you have carried out work on the property, your buyer will want to see evidence of compliance. If the work was in breach of a restriction, the landlord could require the new owner to remove the work or to pay damages. In an extreme case, they could even exercise their right to enter your property and bring your lease to an end.

If you did not obtain your landlord’s consent when you should have done, you may need to apply for it retrospectively or take out insurance against the risk of enforcement action.

If, however, there is an absolute bar on alterations, the position is more complex. As a result of a recent case, Duval v 11-13 Randolph Crescent Ltd, some landlords may be reluctant to agree to vary a lease, for example, to permit alterations that would otherwise be a breach of the lease terms. There are some possible solutions to this impasse, for example, applying to the tribunal to vary the lease terms.

Depending on the facts, the pragmatic approach may be to remove the works yourself or to make it clear to any buyer that the price reflects this risk.

How we can help

Ideally, you should contact your solicitor as soon as you think of selling if you are aware of an issue that might be problematic.

We can advise you about the implications of the issue on the proposed sale, support you through the negotiations or by obtaining relevant insurance. If you need some specialist support, we can introduce you to our colleagues in dispute resolution.

For further information please contact Louise Davis in the Residential Property Deparment at Ware & Kay incorporating Pearsons & Ward on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email louise.davis@warekay.co.uk.