Buying a leasehold property is very common, particularly when purchasing a flat. The important part is understanding what you are buying and making sure you know of any obligations, costs or restrictions contained within the lease.
What Does Leasehold Mean?
When purchasing a freehold house, you own the property and the land it stands on. With a leasehold property, you are buying the right to occupy and use the property for the term set out in the lease. The building and/or land will be owned by a freeholder. The lease is a legally binding document which sets out the rights and responsibilities of both you and the freeholder.
Remaining Term of the Lease
One of the first things we would check is the remaining term of the lease. A shorter term can affect the property’s value and may make it more difficult to obtain a mortgage or sell the property in the future. There are statutory rights which allow qualifying leaseholders to extend their lease, however, the cost and process of extending a lease can vary significantly depending on the route the freeholder and lessee choose.
Service Charge
If you are buying a flat, you will usually contribute towards the cost of maintaining and managing the building via the payment of service charge.
This could cover matters such as:
- Cleaning and lighting communal areas
- Buildings insurance
- Repairs and maintenance
- Gardening
- Lift maintenance
- Management costs
- Communal heating or other services
As part of the process, we would obtain information regarding the current service charge and, importantly, whether there are any arrears, anticipated increases or major works due. A seemingly reasonable service charge can become much more significant if the building is facing a substantial repair.
Major Works
This is one of the areas buyers should pay particular attention to. As an example, a Freeholder may be planning works to the roof, windows, or other parts of the building and would there need to serve a Section 20 Notice on the lessees confirming the lessee will be required to contribute a fair proportion of considerable costs involved. Section 20 Notices are served in respect of any works due to take place that will cost a leaseholder more than £250.00. Our advice would be to set up a separate savings account for such eventualities.
Ground Rent
Depending on the terms of the lease, you may be required to pay ground rent to the freeholder. The amount and any provisions for increases would be checked carefully by us as ground rent provisions have changed significantly in recent years and can become quite onerous on a lessee. Leases with increasing ground rents could be difficult to sell in the future or obtain mortgage finance.
If you are purchasing a new build, the Leasehold and Freehold Reform Act 2024 has amended the rules around ground rent and ensures that any qualifying new residential lease is restricted to a peppercorn ground rent, i.e. of no monetary value.
Restrictions
One of the biggest matters to consider when deciding whether to buy a leasehold property or a freehold property is that the lease can contain stricter restrictions on how you use your home. While some restrictions are relevant for both freehold and leasehold, e.g. seeking prior consent before altering the property, the lease may also require the freeholder’s or managing agent’s consent if you wish, for example, a pet to reside with you or restrict may you from playing music at certain times of the day. The lease will also contain strict restrictions regarding subletting or selling the property in the future.
Repairs
One of the benefits of leasehold ownership can be that maintaining the structure and communal parts of the building is the responsibility of freeholder and the costs shared between the leaseholders via the service charge payments. However, exactly who is responsible for what will depend on the wording of the lease, and this would be checked carefully by us to avoid any surprises once you own the property.
Management Company
Many leasehold developments have a managing agent or management company responsible for running the building. Your conveyancer will obtain a management pack from the Freeholder or managing agent which contains information regarding ground rent, service charge, buildings insurance, any planned major work or anticipate Section 20 Notices and any notice fees payable to the Landlord/management company on completion.
How Dunn & Baker Solicitors Can Help You
If you are considering buying a leasehold property, please do not hesitate to contact us with any queries you might have regarding the above.
Call us on:
Exeter 01392 285000
Cullompton 01884 38818
Or via our contact form: https://www.dunnandbaker.co.uk/contact/