Buying A Leasehold Property – What Is Involved?
Our Property Law Solicitors explain what you can expect as you purchase your new leasehold property:
What does Leasehold mean?
When you buy a leasehold property, you don’t buy that the property is built on, the land belongs to the “freeholder” (the freeholder may also be referred to as “your landlord”) and you will own the lease to live in the property for a set number of years (i.e the length of the lease). The length of the lease could be anything from 99 to 999 years. Most flats are sold on a leasehold basis and an increasing number of new build houses are also being sold as leasehold by property developers. London and the North West of England make up the regions with Leasehold figures of 90% concentration. It is worth noting that leasehold as a form of ownership does not exist in Scotland.
How is owning a Leasehold different to owning a Freehold?
Owning a leasehold property will mean you will have to pay certain charges, usually ground rent plus service charge, management fees and building insurance. The fees will either be paid to a landlord or an agent who acts for them, such as a Management Company. If/when your lease comes to an end the property is forfeited to the landlord although most leases are extended before this happens.
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What charges will there be on a Leasehold Property?
Ground Rent - Some very low fees are referred to as “peppercorn” rent however new developments tend to have higher ground rents. Your conveyancer will also be checking the lease for any further increases in ground rent, increasing ground rent could affect the saleability of the property in the future.
Service Charge - The Service Charge covers maintenance and repairs of the structure such as repairs to the roof, drainage and communal common parts. Watch out for Service Charge with is charged per square foot, according to Direct Line, one property in Lambeth carries a service charge of £7 per square foot making the annual service charge for a 800 square foot flat £5,600 per year.
Building Insurance - The landlord normally takes out the insurance policy on buildings which contain flats, this does not cover insurance for your own contents and possessions so you will need separate contents insurance for this.
Can a lease be extended and how much will it cost?
Find more information about your Lease Extension Options here.
It is normally the seller’s responsibility to extend the lease and bear the cost so even if you are prepared to buy a property with a short lease remember that you may have to pay for a lease extension when you want to sell it.
Can I buy the Freehold?
If the Landlord wants to sell the freehold, it must first be offered to the leaseholder. That said there are exceptions to this rule and the right is not available to tenants of local authorities, housing associations or in some cases where the landlord lives in the building. The Leasehold Advisory Service can provide further information.
Does it cost more to buy a leasehold property?
At MG Legal, unlike some firms, we do not increase our Legal Fees for the purchase of Leasehold properties. That said there can be some additional disbursements as there are different parties involved. The Landlord, Management Company and their agents may all charge for providing documentation and certificates. The cost of these fees varies widely, and your conveyancer will not be able to tell you in advance how much these fees will be.
MG Legal’s top tips for buying a leasehold:
1. Allow for service charge and ground rent in your budget as well as mortgage payments
2. Be prepared for additional charges from the landlord/management company during the purchase process as these will not be included within your initial conveyancing quote.
3. Check if the landlord is planning any major works for the building and when they are likely to happen – you don’t want a big bill when you move in.
4. If you don’t understand, ask! The language used in a lease can seem incomprehensible and your Conveyancer can explain the meaning to you.
5. Use a Local Property Law Solicitor who is experienced in dealing with leasehold properties.
Here at MG Legal, we are happy to talk to you about the process of buying a leasehold property, call us on 01995 602 129 or email email@example.com.