So you are thinking of buying a leasehold property? Leasehold is likely to be more affordable or, in the case of flats and apartments, generally the traditional way in which they are sold, often with access to shared common areas and amenities. As with any important and significant purchased and this includes all property transactions, professional advice is essential. There is lots to consider and it is often the less obvious aspects which might have the greatest impact. When you have bought its too late!
Before you put pen to paper ensure that you know what it’s all about?
Chartered Surveyor Rupert Hambly gives a few pointers.
Rupert Hambly MRICS MSc ARLA ARMA
Director | Peninsula Management | Chartered Surveyors
So what is ‘leasehold’?
When acquiring a leasehold interest, this effectively gives a right to occupy the property for a stipulated period of time and the agreement is the lease. At the end of the lease the property returns to the landlord. The length of term is key, the important thing is the number of years left.
When you are buying a lease be aware of:
You are not going to own it when you are buying a leasehold property.
With leasehold, you get exclusive possession of a property for a fixed period, but do not actually own anything in the eyes of the law.
You will have exclusive use of the defined property, with access and use of any shared facilities and common areas.
How long is the lease?
Before anything, the first things to check are the number of years remaining. If less than 80 years remaining, this needs to be given serious consideration.
A period of less than 80 years is when mortgage lenders consider the length of a lease will materially start to be detrimental the value of a property and its the all-important ‘mortgageability’, with some lenders willing to consider this as suitable security at all. The less the number of years the greater the effect.
Generally a lease can be extended but this will be at a cost. The shorter the lease the greater these costs will be. There are two routes formal and through negotiation with the landlord. Make no assumptions, check the situation fully. As an example, if a lease needs to be extended, as the current leaseholder, they can claim the right to extend the lease, before passing this on to you to progress, following your purchase, otherwise a buyer has to wait two years to acquire the same rights.
This process can be involved, sometimes protracted and possibly costly exercise so it is always preferable that this is dealt with and resolved ahead of your purchase.
This is an area where professional advice is essential, the costs can be significant as can the implicants of doing it, or indeed not.
By their nature, the length of a lease reduces.
Don’t be distracted by the original length of a lease, it’s the term left which is important. Think ahead, you will want to sell the property one day, how many years will be left then?
Not all leases are the same.
Don’t think leases are standard, they will be individually drafted for each building. Ensure that even though the lease will run to many pages and perhaps not easy to fully understand you understand its meaning, though professional advice and guidance. There may be restrictions, there will be obligations, so understand what this means in the context of the whole building, not just the one flat or apartment,
Annual ground rents can vary and change. Look at any review mechanisms, look ahead to see what happens over time and consider the impact.
Generally the freeholder will be responsible for managing the common parts. The freehold could be owned by a third party or a company in which you may acquire a share but this doesn’t change the responsibilities and obligations under the lease.
Ask about the management of the property, its recent history and forward plans; you will be responsible for contributions for your share. Obtain ideally the past 3 years’ Service Charge accounts and look at the condition of the whole building.
Ask about insurance costs
In addition to the Service Charge, all leaseholders will pay a share of the building’s insurance, generally based on a percentage of the floor area. This must be fair and reasonable and must be at a appropriate level.
Information and timing
Generally speaking, acquiring a leasehold property will be more involved and will often take longer. This is because there is more detail to consider falling out of the details of the lease and the details of the management of the building and operation of the Service Charge.
What’s the alternative to buying a leasehold property?
It is not unusual that when acquiring a leasehold that a ‘share of freehold interest / company’ may be acquired. This means that you will also have an interest in the freehold but this will be a minority share, so an understanding that you will be part of a larger community which is distinctly different from owing a freehold.
Leasehold property is common, with their being approaching 4.5 million leasehold properties in the UK, which is increasing.
Ensure your advisors understand both the legal aspects of legal property and the management implications in respect of the specific building. There will be much to consider; ensure that you are informed when you make your purchase.
Visit Peninsula FAQ for an explanation of specialist terms.