News

5 factors to consider before buying a leasehold property

Before you commit to buying a leasehold property, you want to make sure you’re putting your money in the right place. That’s why we’ve detailed five key factors for you to take into account when making your decision.

What is a freehold or leasehold property?

In England and Wales, there are two types of legal estates which you can hold. These are:

Freehold
Leasehold

A freehold property is typically your house or bungalow where you own the property and there is no landlord. You are free to dispose of it at will and will hold the property indefinitely.

A leasehold property is usually flats, maisonettes and shared ownership properties, although sometimes houses can be sold subject to a lease. This is where a landlord owns the freehold title and you buy a slice of time for a number of years. You are granted a lease for a period, usually 99 years or more, which diminishes over time. At the end of the term, if the lease has not been extended, the leasehold title will revert to the landlord.

There are additional charges which you will need to consider which are charged on an annual basis by the landlord or his managing agent. These will be explained further below.

What should you consider?

When buying a leasehold property there are a number of issues to consider:

1: The term of years remaining on the lease

As a general rule of thumb, there should be 80 years or more remaining on the lease – otherwise, the property may be un-mortgageable and your lender will require the lease to be extended before they will agree to release funds. If you are not buying with a mortgage, you may proceed; however, you will need to consider extending the lease prior to disposing of the property. The property will be de-valued as the term of the lease reduces.

2: Ground Rent

This is rent due to the landlord on an annual basis. The amount, when due and details of rent reviews will be detailed in the Lease. You need to check the ground rent review formula to ensure you understand the ground rent to be paid in the future. It may materially affect the value of your property

3: Service Charge

The Landlord will usually employ a management company to undertake routine maintenance and repair to the building and common areas. Their fees will be recouped from the tenants, the amount charged varying depending on the works required. These are detailed in the lease together with the procedure when reviewing and increasing their fees.

4: Post Completion Requirements

In addition to registering you as the new proprietor with the Land Registry, your conveyancer will serve notice on the landlord and management company advising them of the change of ownership. There is usually a charge for each notice that will need to be served and the costs will be listed on your completion statement.

You may be required to enter into a Deed of Covenant with the Landlord and Management company confirming that you will comply with the covenants noted in the Lease.

5: Apportionments

On completion – if your seller has paid ground rent / service charge for a period exceeding beyond the completion date – then you will be required to reimburse the seller for a proportionate part of this (known as apportionments). You will then pay directly to the Landlord / Management Company next time the fees are due.

Get advice from the experts on leasehold properties

This is just a brief summary of the factors involved in a leasehold purchase, but as with any large investment, it pays to have the experts on your side. If you would like to contact us for advice on buying a leasehold property, you can choose one of the following: