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Leasehold Properties - what you need to know

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Leasehold Properties - what you need to know

Before buying a leasehold property, there are a few things that you should know. For example, even though leaseholders may have bought the property and have a mortgage bill every month to show for it, they still have a landlord, who is the owner of the freehold.

This is because the freeholder owns the land on which the property is situated, which also means that the leaseholder may have to pay ground rent.

Once the lease over the property expires, the land reverts back to being freehold, and the owner being the freeholder.

In their roles as landlords, it is a freeholder’s duty where applicable  to maintain the common areas of the property and keep them in a good state of repair. It is also a freeholder’s duty to keep the property insured against fire, destruction and damage. Service charges allow landlords to recover the reasonable costs they incur in providing services to a building and because of this  the leaseholder has to pay an annual service charge, maintenance fees, their share of the buildings insurance and ground rent.

It is a criminal offence for a landlord to refuse to show what the service charge is being spent on. The leaseholder has the right to see receipt and ask for a summary showing how the charge is worked out and what it’s spent on.

A buyer should consider the following points before purchasing a leasehold property:

  • How much ground rent, buildings insurance and service charge will you have to pay?
  • How many years are left on the lease?
    • If less than 70 years, it may be a struggle obtaining  a mortgage or selling it on.
    • Between 90-125 years is a good lease length (They can go up to 999 years however).
    • If a property has a short lease, it is important that you try to extend it, or troubles could arise.
    • You can request an extension from the landlord after owning the property for 2 years. You have the right to extend it by 90 years as long as you are a qualifying tenant. The freeholder will charge you do this.
  • If you plan on doing any major works to the property, you will have to seek consent from the freeholder first.
  • There could be additional restrictions/covenants placed upon the property, such as not being allowed to have pets or not being able to sublet.
  • What is included in the service charge?
  • If there is a ‘sinking fund’ and whether any major works are planned.
  • Does the vendor owe any money? – As this could automatically be charged to the new leaseholder.

If a group of neighbouring properties are all leasehold but owned by the same freeholder, the leaseholders can group together and buy the freehold, each owning a share. This is called enfranchisement. It is beneficial for leaseholders to do this as they gain total control of their property and the land that it is on.

Whilst a lot of the above is more relevant to flats or apartments, the issue of ground rent in particular is important if purchasing a new build or buying from the first owner. Increasing numbers of contracts have steep rises in ground rent over a short period of time which can cause problems in affordability and selling the property. It is key to any purchase to have an expert lawyer  scrutinise the title and provide a comprehensive report upon it. Make sure that advisor works at Fieldings Porter!