Buying a Leasehold Property - What You Need to Know
Did you know that four in 10 new properties in England and Wales are now sold as leasehold, ranging from one bedroom flats in city centres, to four bedroom detached homes in rural areas?
Before you buy a leasehold property, it is important to be aware of what your lease includes and understand any charges you may face when buying a leasehold home.
What is the Difference Between a Leasehold and a Freehold?
If you own the freehold to your home, it means that you own the building and the land it sits on. If your property is leasehold, you hold the property on behalf of the freeholder and rent the home until your lease expires. Leases are usually long term – often 90+ years, however some developers have sold homes with leases as high as 999 years.
What is Ground Rent?
Ground rent is an annual charge which the leaseholder must pay to the owner of the freehold. This is often a fixed sum however your lease may contain a clause which allows the landlord to increase the cost payable every five to eight years from the date of build.
Your agent, conveyancer or solicitor should be able to advise if there are any rent review clauses in your lease and check what this would mean for you. The costs of the ground rent may be negotiable so make sure to check this with your agent or the developer if you are buying a new build.
Why Do I Have to Pay a Service Charge?
A service charge is a fee that is payable by all residents which contributes towards the upkeep of the building. This could include cleaning of communal areas, upkeep of outdoor spaces and general maintenance. Generally, the fee payable is fixed however this may change year on year.
Make sure you ask your conveyancer or solicitor to explain all charges fully and enquire as to whether the lease administrator has any plans for works which you will be responsible to pay for.
Why Would I Be Asked to Pay an Administration Fee?
Administration charges are payments for services connected with your buying, selling or use of the property; they can include anything from charges for document applications to exit fees. The costs of any administration fees should be expressed in your lease agreement however your conveyancer or solicitor should be able to review your lease and advise you accordingly.
What Should My Agent Be Telling Me?
Your estate agent should pass on all material information in respect of the lease. This would include, but is not limited to;
- The number of years remaining on the lease
- Ground rent costs and when it is payable, together with details of if or how this will increase over time
- The annual service charge costs and when it is payable
- Details of any event-related fees & charges payable under the lease
- Rent payable in the case of a shared ownership arrangement
- Details of any other fees or charges contained in the lease
- Details of any unusual restrictions or covenants affecting the use and enjoyment of the property
Keep in mind that estate agents are not solicitors, if you are concerned about any aspect of your contract or your lease, speak to an impartial solicitor.
What Else Should I Be Aware of When Buying a Leasehold Property?
Developers have been known to sell the freeholds of entire developments to third party companies who then charge escalated fees to the homeowner when they come to purchase the freehold. Spiralling fees and onerous clauses have led to some building societies and banks refusing mortgages on leasehold properties – this can make them very difficult to sell.
Can I Buy the Freehold?
Being able to buy the freehold to your property is not a legal right and the freeholder can choose whether to sell it or not. Before you commit to buying a property, look into who owns the freehold and find out whether it is likely to be sold on and who too. If you are buying a new build, ask the sales office to quote you a price for purchasing the freehold.
If you live in an apartment or large complex, there are steps you can take to purchase your freehold, take a look at our helpful guide on buying the freehold to your flat.
Read Your Contract Carefully
Some leases have clauses which obstruct your use of the property and some restrictions are not always obvious. Read your lease carefully and if you are unsure of anything, speak to your solicitor immediately. Make sure you have a clear understanding of what you are entering in to, how much you will be expected to pay on an annual basis and if there are due to be any increases.