When you are buying a leasehold property you are paying to lease it from a freeholder for a set amount of time. The freeholder is the landlord and the owner of the building as well as potentially land it is built on. Therefore, you won’t own the building or the land, you have an interest over a defined part of the building.
Flats are commonly leasehold and you will have an interest in one part of the block of several other properties but houses can also be leasehold.
The process of purchasing a leasehold property can be more complex because lenders will have certain stipulations and requirements of the lease.
Here we have listed the four main factors you need to consider when looking to purchase a leasehold property.
- Beware of charges
There will likely be a ground rent charge written into the lease agreement. It can be a fixed amount but some freeholders may stipulate an escalating ground rent that increases each year. There may also be service charges to pay. These are a contribution to building maintenance and insurance costs, and are more common with blocks of flats or apartments where there are communal areas such as gardens to maintain, or lifts and lights in lobby areas to maintain. You may also see reference to a reserve fund. This is an annual contribution to a fund for irregular costs such as structural maintenance. You may find that previous leasehold ‘owners’ of the property have already contributed to this fund. With all these costs you should check they exist, understand how the costs are collected and how they may change. You should also check there are no arrears that you may become liable for.
- Keep an eye on the lease length
Although a lease of 99 years sounds lengthy and are may not plan to live in the property that long, you need to be aware of the lease length and how long it has remaining. The length of the lease remaining can affect the value of the property, and as when it goes below 80 years it can start to have a bigger impact on future finances. This is because you can pay a fee to extend the lease but when there are fewer years remaining, the cost becomes much more expensive, possibly running into thousands. If you see a leasehold property for sale that is surprisingly cheap, it could be because the lease has only 60-70 years remaining. Make sure you check the length of the lease remaining and check what the market value of that particular property should be. It may not be the bargain you think it is.
- Check what restrictions are in place
Restrictions are sometimes known as ‘covenants’ and are essentially a stipulation of the lease that prevents you doing certain things in or with the property. The most popular one is alterations and extensions to the property. The restriction may be that you can’t do any at all (common with flats where there is physically no scope to extend the property, for example) or it may be that you need to seek consent from the freeholder. When buying the property you should check whether any previous alterations have been made, and whether suitable consent was secured for them. You may become liable for these alterations and have to pay retrospectively for the consent. Other common restrictions may be the ownership of pets, or using the property for business purposes.
- Think about the future
If you found a leasehold property difficult to purchase, in terms of complexity and securing the funding from a lender, then you need to remember that the same will apply when you come to sell it. You need to consider whether the property – as a leasehold property – will be attractive to a buyer in the future. It could be that you pay a minimal, fixed ground rent with no other charges, you have over 80 years left on the lease and there are no restrictions on extending or using the property. If so, great, the property will be very attractive when you come to sell it. If the opposite is true with one or all of those considerations, then you need to think carefully about whether it is a good idea to proceed with a purchase.
Contact Ison Harrison for help and support with buying a leasehold property
Whether you are buying a leasehold house or buying a leasehold flat, our residential conveyancing experts at Ison Harrison can help you with important information and advice about the process. Buying a leasehold property involves some specific considerations and our team can help you navigate the process, understand the lease and also negotiate a lease extension. If you are looking at buying a leasehold property, contact our specialist conveyancing team at Ison Harrison today.
