Buying a leasehold flat? Read this first.
People often buy a leasehold property under the mistaken assumption that they own the place. This is not the case. A leasehold property can expire like goods in the grocery store.
A lease is essentially an extended form of rental. The freeholder retains possession of the land (for which you will pay ground rent) and when the lease expires the property reverts to them.
While living there you must abide by the term s of the lease, pay the landlord maintenance charges, and also cough up for service charges, insurance and the like.
Inflated charges, bad management and little control over who does repairs are often serious sources of conflict between leaseholders and freeholders / managing agents, and lease extensions can be an unwelcome expense.
So, if you plan to join the 3 million others living in a leasehold property be very very sure you know what you’re getting into. Here are eight areas to watch out for:
1. How long is the lease?
First off, check the lease length. Anything less than 75 years makes mortgage lenders twitchy and reluctant to lend. Keep in mind too that once it goes below 80 years you’re sitting on a dwindling asset.
You can download the leasehold title from the Land Registry website, which will show you the exact lease length (it may be on the property details, but best to double-check).
2. Extending a lease before buying
A lease will need to be renewed before it falls below the 80 year mark, and the further below 80 it goes the more expensive it gets to renew. Lease extensions cost money – you need to employ a surveyor to haggle over the value and a solicitor to square away the paperwork. Then there’s the cost of the extension itself.
If the lease is short, negotiate with the seller and try to get them to put through the extension before you buy – this is important because you need to have owned a flat for two years before you can serve a Section 42 Notice to have it extended.
3. Long lease and share of freehold
As all of the above makes clear, it’s worth buying a place with a long lease or a share of freehold. It may cost a bit more, but it’s a lot less hassle.
4. Sinking fund
Your solicitor should talk you through the terms of the lease – make sure they do and don’t be afraid to ask questions.
Usually, the freeholder is in charge of the building structure (though sometimes tenants are responsible) but tenants must pay into a fund to finance this (freeholders usually use a management company).
Check if there is a sinking fund set up to cover substantial maintenance. Find out how much you have to contribute annually, and whether it goes up regularly. Find out how often they do repair work and if there any big jobs in the pipeline (eg: new roof) – especially important with apartment blocks.
When viewing, check the state of repair – especially the common areas. And have a full survey done.
5. Other charges?
Typically buildings insurance (check if this is competitive), service charges (repairs, cleaning and maintenance) and administration charges. How much are they, and how often do these have to be paid (monthly/annually?).
6. Who is the freeholder?
It’s good to know who the freeholder is and who the management company is. Ask the other tenants if the set up is ok (knock on doors or post a card with your number). This side of things is probably the most contentious in leasehold so it’s worth spending some time on it.
Details of the original parties should also be shown on the leasehold title along with the length of the lease. That would include the original freeholder and Management Company (if any) but you can always check to see if the freehold title is registered as well and see who the current freeholder is.
Read your lease carefully. Does it ban pets? Or stripped floorboards? Or playing an instrument? What about making changes to the building – such as an extension? (freeholders can sometimes block this or make it expensive). Does it restrict letting out the property? Or running a business from home?
Are there any plans in place to buy the freehold, or assume management of the property? If the majority of the leaseholders get together, they can collectively force the freeholder to sell you the property. Each flat then owns a ‘share of freehold’. Worth knowing the score here – are people open to the idea, or is it definitely out of the question?