Purchasing a leasehold property?

ARE YOU THINKING OF PURCHASING A LEASEHOLD PROPERTY?

Freehold and Leasehold are the two main different ways to own a property in England and Wales. 


“Commonhold” is quite rare.


Freehold means that you own the property itself as well as the land that it sits on (most commonly seen in house purchases), whereas Leasehold (most typical for flats) means that you own the right to occupy the property for a specified number of years through owning the lease (a form of contract). Leases set out detailed terms on which you are entitled to occupy the property and your rights and responsibilities.


Some houses, as well as flats and maisonettes, may be Leasehold.


There are some big differences in those rights and responsibilities between freehold and leasehold ownership and it’s important to know what these are before you commit to making your purchase.

PURCHASING A LEASEHOLD PROPERTY

If you are applying for a mortgage it will be crucial to find out how long of the original term of years on the lease remains. Mortgage lenders are unlikely to extend loans for properties with leases of 75 years or less remaining. The length of the remaining lease will affect the price of the property too, if less than that period. It is important to have a valuation carried out by a qualified surveyor so that you can be sure that you’re not paying too much for your property vs the term left. You can normally extend a lease but this is often a long, complicated and costly process. 

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who organises and pays for the maintenance of the building?

Being a leaseholder of a flat in a larger building or complex means that you will usually pay a service charge each month towards the cost of maintenance of common parts of the building, including any lifts.  A professional property managing agent would usually organise any repairs needed. It’s important to understand how much the service charge is annually and what it will cover. This detail should be included in your Leasehold Agreement or as a separate statement of current costs. 


With maisonettes and flats in smaller buildings or converted houses, individual flat owners can be responsible for maintaining their own part of the building – this can mean if you occupy the top floor of the property, you could be liable for the roof and guttering and whilst the lease agreements for the other flats may require a contribution for any repairs, it is not necessarily the case. In some circumstances, the owners of a top floor flat may be reluctant to carry out repairs, or may refuse to contribute to any costs for work carried out to your part of the building.

If these circumstances may affect you or your purchase of any leasehold flat, you should ensure that you get a professional survey carried out on the building to check that there will not be any problems with the structure that any of the other owners are responsible for, or indeed that you may be responsible for, from the outset.


Payment of a service charge to the managing agents for your share of all the costs of maintaining and insuring the building will vary depending on the services provided. The law requires these charges to be reasonable. Much like buying a car, it can be helpful for you to see a copy of recent charges and services carried out to give you an idea of the expected ongoing level of costs as well as the overall condition of the building. Ask your lawyer to obtain this for you.

carrying out alterations to the property and other considerations

When you own a leasehold property, you will usually need written consent from your landlord before making any structural changes to the interior. 


Your lease will also detail further covenants with regards to whether you are allowed pets in the property, whether you can let it out for rental income (Buy to Let) and whether you can run a business from there too. All points that will need clarification before committing to purchasing a leasehold property.

should i have a survey?

Absolutely, without question. 


On average, homebuyers who had no survey report produced for them spend £5,750 on repairs once moved into their new home according to research by The Royal Institution of Chartered Surveyors (RICS). Sadly, in many of these cases these costs could be avoided by getting a surveyor to inspect their property before they exchanged contracts and matters to do with the interior of a flat or maisonette are no less important than those in a house. The purchase price might be adjusted based on the survey report.

Surveyors will have specialist knowledge about flats. Leasehold properties carry particular legal implications which qualified surveyors will know about. If the matter of maintenance responsibilities arises, for example for a communal lift, surveyors would be thorough in checking service histories and other maintenance records which may save you significant sums of money should it need repair.


A surveyor, if he is working with your lawyer and has been provided with a copy of that lease and related documents, can identify any unusual quirks or inconsistencies between a standard set of leasehold terms and your actual contract, bringing them to your attention before you make that final commitment to purchase. See later – WARNING.


If you need a survey on a Leasehold property please do contact us.

what about the "ground rent"? - warning!

There has been a lot of media coverage of Ground rents payable under leases. In the past that amount, paid annually for the “use of the land on which the building stands”, would be fixed for the duration of the lease, often at a relatively low figure, perhaps £100 to £150 per year. 


In recent years it has become common for the lease to require the Ground rent to be increased after a period of years, possibly by set amounts, but sometimes by reference to an outside statistical measure such as the Retail Prices Index, showing “cost or price inflation”. 


Even more recently the rent due has often been higher initially, sometimes starting at, say, £300 per year or even more, but then increase sharply, by amounts that bear little relation to costs inflation. For instance, that sum could double after ten years, double again another ten years later, and so on. A substantial number of recently built homes have such provisions in the lease.

Eventually that amount payable could become so great that the leaseholder could find that hard or impossible to pay. In that case, the market value of the leasehold property could be badly affected, as mortgage lenders might refuse to lend, so only cash buyers might be able to take on that property at a greatly reduced price.


The Government are considering introducing legal regulations to prevent similar provisions in future leases, but no definite draft has yet been produced for any comment by the professional bodies in the property industry such as the RICS or the Law Society.


Your legal adviser MUST check and advise you if the Lease contains such adverse or “onerous” terms, as it may be unwise to consider purchasing the property. This is not something for a surveyor to advise you upon, and the future value cannot be estimated. 


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