There are around 4.6 million leasehold homes in England, according to estimates from the Ministry for Housing, Communities and Local Government. Buying a leasehold property has always been a popular first step on the property ladder. However, buying a leasehold flat or apartment is often more complicated than a simple freehold purchase and can involve other parties such as a Landlord or Management Company. Peter Watkin is a property lawyer at Rundlewalker Solicitors in Exeter, and he has some tips for those new to leasehold to help them get a better understanding of the issues when buying.
How long is the lease?
The original term or length of the lease and how much of it is left are very important. If it was a 999 year lease and has 900 years left, that is likely to be fine. But if you are buying a leasehold with a shorter term such as 99 years or less, you may need to think about getting the term extended, as the value of a leasehold property goes down as the term of the lease gets shorter. You have a legal right to a lease extension once you have owned the property for two years - if you have already bought the leasehold you can do this by serving a specific notice on your landlord. A better plan, however, may be to ask the seller to get the lease extended before you buy or at least begin the process.
Confirm the ‘Demised Premises’
The ‘Demised Premises’ is what is included in your ownership under the terms of the lease. It will usually include the interior of the property, but not the external walls, or roof, which will remain with the landlord as part of his freehold. It is important to check the lease carefully to find out what is included as if you want to carry out alterations or improvements, such as an extension, you may have to pay the landlord for his permission - or he may refuse permission altogether.
Ensure alterations have been authorised
You should check whether previous leaseholders have conducted unauthorised alterations to the property, otherwise you may be saddled with the cost of obtaining retrospective consent from the landlord or even worse reinstating the property. You can do this by reviewing the original lease’s plan and comparing it to the current layout of the flat. If alterations have been carried out without Building Regulations approval, it is essential that you check with your surveyor whether they have been completed satisfactorily. In some cases, it may be advisable to seek retrospective Building Regulation approval from the council. If the unauthorised work is minor and you are satisfied with the standard of workmanship it may be possible to obtain an ‘indemnity insurance policy’ from the seller to protect you (and subsequent owners) against legal action if the local authority takes enforcement action, but of course offers no protection against actual sub-standard work.
Calculate the Ground Rent
A Ground Rent is payable to the landlord on most leases. This is usually a nominal, annual amount from zero to sometimes hundreds of pounds. Higher Ground Rents can be problematic, and it is important that specialist advice is obtained if the Ground Rent is or could exceed £250. Also, if the Ground Rent can be increased, it is important to check carefully how often this can be increased and by what measure.
Understand the Service Charge
Leaseholders are usually required to pay a Service Charge as their share of the cost of managing, repairing and insuring the building and sometimes the grounds in which it stands. Service Charges allow the landlord to recover the costs of providing these services under the lease. You should check what services the landlord can charge for, how he budgets for the cost and what the procedure for sending out bills and providing accounts is and if it is properly followed. It might be helpful to ask to see the recent history of Service Charge bills so that you can get a sense of what has been paid before, although history is not always a reliable guide to the future. Be especially wary of the possibility or expectation of an unusually high Service Charge bill coming down the line that has prompted the seller to sell.
Ask about major work
You should establish before agreeing to buy whether there are any major works planned for the building and if so, what they are. You should also check whether there is a Reserve Fund or Sinking Fund already in place to fund it, or if you will be expected to contribute towards the cost. Some flats are facing large re-cladding bills as a result of the Grenfell tragedy and as a result, this has made these properties virtually unsaleable.
Look out for Administration Charges
The landlord may require you to pay Administration Charges for things like granting approvals under the lease, providing information or documents, penalising you for failing to pay Ground Rent or Service Charges, or breaching the lease. You should ask your solicitor to ensure these are reasonable.
Check for any restrictions
Some leasehold properties are subject to covenants which restrict how you use the property (such as banning pets from the premises) or place an obligation on you to do something (such as pay into a Sinking Fund). Once you are a leaseholder you are bound by these covenants, so you and your solicitor should go through them carefully to ensure they do not deter you or any future buyer.
If you need advice on purchasing a leasehold flat or apartment or need legal advice on any other conveyancing matter, please contact Peter Watkin on 01392 209204 or email firstname.lastname@example.org
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.