5 ms·

> We have a crazy system where people purchase “long-leases” for their flats, you don’t own the flat, your just renting it for a long period of time Who owns t

by dstola 6y ago

> We have a crazy system where people purchase “long-leases” for their flats, you don’t own the flat, your just renting it for a long period of time Who owns the flats then? A lease of 99 years with rent I would assume easily covers the outright cost of the flat. Seems crazy to me that this system continues to function.

TheOtherHobbes 6y ago
Generally there's a management company. In some situations owning your flat automatically gives you a share in the management company. Other times the company and the freehold - as it's called - are owned by a third party. You don't pay rent to the freeholder, but you do pay "management fees" which are supposed to cover insurance and "admin." You may also pay "ground rent" which is a small-ish fee to cover use of the land on which the building stands. In reality freeholders often do a deal with insurance companies. They get insurance at a reduced rate and don't pass on the savings to leaseholders. There are various other scams that can make leaseholding a nightmare. This is all completely unrelated to renting. As a leaseholder you're an owner, for varying values of "temporarily". If your flat has a 999 year lease you can easily sell it on or if it has a share of the freehold. If it's <99 years nd there's no share of the freehold it gets harder to sell. And by the time you get to <50 years you're going to have serious problems selling it, unless it has some outstanding features or benefits to compensate or you're in a market segment which is happy to treat the money as a simple rental (which does happen, especially at the high end).
- sjg007 6y ago
  Hawaii real estate has a similar dynamic.
avianlyric 6y ago
> Who owns the flats then? The building owner (freeholder), who is normally also the superior landlord. > A lease of 99 years with rent I would assume easily covers the outright cost of the flat. You pay annual ground rent, UK law means that this is pretty much capped to £250 per year outside of London, and £1000 per year in London. Most ground rents are below that (£30-£100 per year outside London, £200-£500 inside London). So for most leases the ground rent over the lease period doesn’t even come close to the premium (the amount paid the purchase the lease, or what most people would call the cost of the flat). If you do a statutory lease extension (which costs money), then the lease is extended to 999 years, and the ground rent drops to a peppercorn (another bit of crazy English law https://en.m.wikipedia.org/wiki/Peppercorn_(legal) https://en.m.wikipedia.org/wiki/Peppercorn_(legal) ).
- iso947 6y ago
  Recent scan has been doubling ground rent every 10 years - effectively 7% increase a year
cm2187 6y ago
Usually real estate companies or the original developers. It creates all sort of opportunities for abuse. Most of these long term leaseholds have a symbolic rent (“peppercorn rent”) though unscrupulous developers started setting up contracts with an initially small rent but with a steep contractual step up over time (most people do not read the small print). The servicing of the property is also often a way to squeeze leaseholders. The landlord has control over the servicing company and can overcharge through the service charge. There are some projects of laws to remediate this mess, but this requires to overwrite private contracts, something gvts have been reluctant to do so far.
jelliclesfarm 6y ago
It’s really cheap. It certainly helps people stay housed. Contrast this to the system in the United States where renters can be evicted anytime. Most rental contracts are only for a year and rents can be increased at will. In fact, I propose that we incorporate this system at a larger scale in the USA.
- gpderetta 6y ago
  It is not really cheap at all. Freeholds do not trade at a significant premium compared to leaseholds. And for flats, outside of Scotland, there isn't really an option.
  - jelliclesfarm 6y ago
    The same system works wells in Singapore but it’s for three tiers of income and over 75% of population lives in govt owned housing. Housing obtained at subsidized rate shouldn’t be treated as a speculative asset as the people signing up will likely never qualify for housing loans, normal interest rates or even have the ability to put down down payments. Especially in desirable areas. The goal is to provide stable affordable housing for those who are housing insecure. The market place has been made accessible to them for habitat and not to get an unfair advantage as a speculative play. Do you have any source where I can look at the numbers? ETA: the same system here in the us is called BMR or below market rent apartments. It’s not social housing or section 8. There are also 55+ only senior communities to assure that seniors are not priced out due to housing insecurity/eviction threats.
    - gpderetta 6y ago
      I have no numbers, but that was my understanding of the market when I bought a flat. The government does sell leaseholds of their home to council tenants through the right to buy scheme, but in general leaseholds are not a government scheme: they are sold and bought between private parties. In the past I understand that a significant percentage of the UK population used to be council tenants but the through the right to buy scheme the government got rid of a lot of housing stock and it only replenished a fraction of it.
OJFord 6y ago
How else would it function? In a multitenant property there's not any clean way for people to own the freehold to pieces of it. I don't really see what the issue is, it's just another option. You can buy a freehold, a leasehold for typically a kiloyear new or whatever remains (which will be accordingly cheaper), or rent.
- epanchin 6y ago
  In Scotland and elsewhere in Europe you have “commonhold” where tenants own the freehold of their flats. Edit: sorry, in Scotland it is called freehold or feuhold not commonhold but could be considered equivalent. I believe commonhold is also used in the US.
  - OJFord 6y ago
    Yes, I just wouldn't call it a 'clean way'. It's not an easy thing to which there's an obvious solution making the freehold/leasehold split bonkers.
  - TheCoelacanth 6y ago
    Never heard the phrase "commonhold" used in the US, but it seems similar to "condominium".
    - OJFord 6y ago
      Huh, thanks for that - I honestly thought that was just what you (North Americans) called blocks of flats (resp. apartments) - I had no idea it was actually more specifically/correctly a particular (presumably commonplace) ownership structure for such buildings.

by dstola 6y ago

TheOtherHobbes 6y ago

Generally there's a management company. In some situations owning your flat automatically gives you a share in the management company. Other times the company and the freehold - as it's called - are owned by a third party. You don't pay rent to the freeholder, but you do pay "management fees" which are supposed to cover insurance and "admin." You may also pay "ground rent" which is a small-ish fee to cover use of the land on which the building stands. In reality freeholders often do a deal with insurance companies. They get insurance at a reduced rate and don't pass on the savings to leaseholders. There are various other scams that can make leaseholding a nightmare. This is all completely unrelated to renting. As a leaseholder you're an owner, for varying values of "temporarily". If your flat has a 999 year lease you can easily sell it on or if it has a share of the freehold. If it's <99 years nd there's no share of the freehold it gets harder to sell. And by the time you get to <50 years you're going to have serious problems selling it, unless it has some outstanding features or benefits to compensate or you're in a market segment which is happy to treat the money as a simple rental (which does happen, especially at the high end).

sjg007 6y ago
Hawaii real estate has a similar dynamic.

avianlyric 6y ago

> Who owns the flats then? The building owner (freeholder), who is normally also the superior landlord. > A lease of 99 years with rent I would assume easily covers the outright cost of the flat. You pay annual ground rent, UK law means that this is pretty much capped to £250 per year outside of London, and £1000 per year in London. Most ground rents are below that (£30-£100 per year outside London, £200-£500 inside London). So for most leases the ground rent over the lease period doesn’t even come close to the premium (the amount paid the purchase the lease, or what most people would call the cost of the flat). If you do a statutory lease extension (which costs money), then the lease is extended to 999 years, and the ground rent drops to a peppercorn (another bit of crazy English law https://en.m.wikipedia.org/wiki/Peppercorn_(legal) https://en.m.wikipedia.org/wiki/Peppercorn_(legal) ).

iso947 6y ago
Recent scan has been doubling ground rent every 10 years - effectively 7% increase a year

cm2187 6y ago

Usually real estate companies or the original developers. It creates all sort of opportunities for abuse. Most of these long term leaseholds have a symbolic rent (“peppercorn rent”) though unscrupulous developers started setting up contracts with an initially small rent but with a steep contractual step up over time (most people do not read the small print). The servicing of the property is also often a way to squeeze leaseholders. The landlord has control over the servicing company and can overcharge through the service charge. There are some projects of laws to remediate this mess, but this requires to overwrite private contracts, something gvts have been reluctant to do so far.

jelliclesfarm 6y ago

It’s really cheap. It certainly helps people stay housed. Contrast this to the system in the United States where renters can be evicted anytime. Most rental contracts are only for a year and rents can be increased at will. In fact, I propose that we incorporate this system at a larger scale in the USA.

gpderetta 6y ago
It is not really cheap at all. Freeholds do not trade at a significant premium compared to leaseholds. And for flats, outside of Scotland, there isn't really an option.
- jelliclesfarm 6y ago
  The same system works wells in Singapore but it’s for three tiers of income and over 75% of population lives in govt owned housing. Housing obtained at subsidized rate shouldn’t be treated as a speculative asset as the people signing up will likely never qualify for housing loans, normal interest rates or even have the ability to put down down payments. Especially in desirable areas. The goal is to provide stable affordable housing for those who are housing insecure. The market place has been made accessible to them for habitat and not to get an unfair advantage as a speculative play. Do you have any source where I can look at the numbers? ETA: the same system here in the us is called BMR or below market rent apartments. It’s not social housing or section 8. There are also 55+ only senior communities to assure that seniors are not priced out due to housing insecurity/eviction threats.
  - gpderetta 6y ago
    I have no numbers, but that was my understanding of the market when I bought a flat. The government does sell leaseholds of their home to council tenants through the right to buy scheme, but in general leaseholds are not a government scheme: they are sold and bought between private parties. In the past I understand that a significant percentage of the UK population used to be council tenants but the through the right to buy scheme the government got rid of a lot of housing stock and it only replenished a fraction of it.

OJFord 6y ago

How else would it function? In a multitenant property there's not any clean way for people to own the freehold to pieces of it. I don't really see what the issue is, it's just another option. You can buy a freehold, a leasehold for typically a kiloyear new or whatever remains (which will be accordingly cheaper), or rent.

epanchin 6y ago
In Scotland and elsewhere in Europe you have “commonhold” where tenants own the freehold of their flats. Edit: sorry, in Scotland it is called freehold or feuhold not commonhold but could be considered equivalent. I believe commonhold is also used in the US.
- OJFord 6y ago
  Yes, I just wouldn't call it a 'clean way'. It's not an easy thing to which there's an obvious solution making the freehold/leasehold split bonkers.
- TheCoelacanth 6y ago
  Never heard the phrase "commonhold" used in the US, but it seems similar to "condominium".
  - OJFord 6y ago
    Huh, thanks for that - I honestly thought that was just what you (North Americans) called blocks of flats (resp. apartments) - I had no idea it was actually more specifically/correctly a particular (presumably commonplace) ownership structure for such buildings.