Most flats and apartments, and even some houses, will have a leasehold title. If you’re buying a leasehold property, there will be a lot more paperwork involved in your purchase and a lot more information to consider.
When you purchase a leasehold property, you will own the property for the fixed period of time that is specified in the lease. It is therefore important to know exactly how many years are remaining on the lease when you buy the property, especially if you’re getting a mortgage. Most mortgage lenders will require at least 70 years to be left on the lease, though every lender has different requirements. It’s advisable to extend the lease if the term remaining is getting close to 80 years. Make sure you’re thinking ahead when considering how long is left on the lease, and the impact this will have when you come to sell or remortgage the property in the future.
Your lease will define you as the ‘tenant’ and will make reference to your ‘landlord’ which is the person or company who owns the freehold or superior title out of which your lease has been granted.
Your lease will specify the rights which have been granted to you, covenants which you must abide by, and will identify what’s included in your property with reference to a plan. Please make sure you check the plan as it should show the layout of the property, and if any changes have been made since the lease was granted then you’ll need to ensure that the landlord gave consent for these changes.
Most leases require you to obtain permission from the landlord before making any structural alterations or additions to the property and require you to be responsible for maintaining the property itself. Always remember that you don’t own a leasehold property outright, you are essentially renting it on a long-term basis from the landlord, and so you must abide by the terms of the lease and get consent for works you intend to do.
You may be required to pay an annual ground rent, and you must check the amount of ground rent payable and whether this is due to increase during the term of the lease, as sometimes this can cause problems. You may also need to contribute towards maintenance costs of the building as a whole and any common parts. This is often called a “service charge”.
Check the lease so that you know whether your landlord is responsible for putting buildings insurance or whether this is your responsibility. If the leasehold property is a house or a flat within a small building with an upstairs flat and a downstairs flat, then it is likely that you’ll be responsible for your own buildings insurance. Most other leasehold properties, i.e. an apartment in a large block of flats, should specify that the landlord is responsible for insuring the whole building, and each flat owner has to contribute towards the cost of the insurance.
Before you buy a leasehold property, you need to take into account all of the costs involved with the property and make sure that it is still affordable. Service charges can escalate over time and you need to be prepared for expenditure to potentially increase during your ownership. If the building needs any major works to be carried out, for example roofing works or structural works, then you will be expected to contribute towards the cost of these along with all of the other flat owners in the building.
Some larger blocks of flats will be run by managing agents who specialise in managing developments and will look after things on behalf of the landlord. Smaller buildings might be managed by the owners of the flats within the building on a more informal basis. It may be that some money has been set aside over the months and years to cover any big expenditure that’s needed. This is called a reserve fund. If you’re buying a flat that’s in a larger block of flats it’s a good idea to check whether there’s a reserve fund and, if so, how much is currently in it, as this might be needed to cover the cost of any works.
If your landlord is planning to carry out maintenance works to the building that are going to cost a substantial amount, then they have to consult the flat owners and give them notice of their intention to carry out the works. If you’re buying a property that has ongoing works being carried out, it’s important to establish the cost of the works and negotiate with your seller as to who is going to be responsible for paying for the works.
When you are buying or selling a leasehold property, there will be extra disbursements payable along the way. Unfortunately your solicitor won’t be able to advise you of the exact amounts payable until the transaction is underway. This is because every leasehold transaction is different and it will depend on who the landlord is and how the lease is structured. Generally, a seller will have to pay a fee to the landlord or their managing agents for a management pack to be supplied to the buyer’s solicitors and if there is a licence to assign required the seller will also have to pay for this. On completion, the buyer will have to pay a notice fee to the landlord to confirm that they now own the property and to give details of any mortgage that has been secured over the property. A buyer might also have to pay a further fee to the landlord if a deed of covenant is required or a certificate of compliance is needed to comply with a restriction on the Register.
All of these considerations should be taken into account before you proceed with the purchase of a leasehold property. Make sure you have read all of the information provided to you and ask questions if you don’t understand anything. It can be quite daunting as there’s a lot to take in. Remember, you are not legally committed to a purchase until contracts have been exchanged, so take the time to consider everything in full before you decide to go ahead.