There are around 4.6 million leasehold homes in England according to government estimates, and one in five homes is owned on a leasehold basis.
Buying a leasehold property, which gives you the right to live in your home for the term of the lease, does have its attractions compared to a freehold. They tend to be less expensive; involve less building upkeep; and the service charge generally covers shared costs like buildings insurance, gardening and maintenance.
Despite these perceived benefits, there are some issues to look out for during your negotiations, as Matthew Sabine, partner and head of our residential property conveyancing team in Heathfield, East Sussex explains.
- Lease term
A leasehold property’s value decreases as the term of the lease shortens, while the cost of extending it rises. If you are purchasing a leasehold with a term of less than 90 years, it is worth seeking to extend it before it is less than 80 years when the cost of extending the term of the lease rises substantially.
After you have owned a leasehold property for two years, you are legally entitled to a lease extension (sometimes call a ‘statutory extension’). If appropriate, it is preferable to require the seller to start the formal lease extension procedure before you buy, and then you can complete it after the sale. If you have already bought a leasehold, once you have owned it for over two years, you can serve a specific notice on your landlord to secure the extension.
- Demised premises
You need to check your lease carefully to discover what is included in your ownership under the lease, often known as the ‘demised premises’. Such ownership will usually include the interior of the property, but not the outside walls, foundations or roof (i.e. the structural parts of the building), which will be retained by the landlord as part of the freehold. The landlord (or management company if there is one) will be responsible for maintaining these parts of the building and you will have to contribute towards the costs arising from this through the service charge.
You may also have to pay the landlord for consent to make alterations or improvements, such as removing walls or changing the layout of the apartment, especially if the planned works involve parts of the building not included in the demised premises.
- Unauthorised alterations
You should compare the plans of the original lease when you receive it to the current layout of the property to ensure a former leaseholder has not made unauthorised alterations to the property.
If they have, you should ensure the seller is asked to obtain retrospective consent for the works from the landlord, and, if alterations were made without building regulations approval, you should consider whether you need to ask the seller to obtain retrospective approval or it may be possible to request an indemnity insurance policy from the seller to protect you against legal action if the local authority takes enforcement action.
- Ground rent changes
Payable to the landlord on most leases, ground rents have been the subject of controversy in recent years and need careful attention. Historically, they are usually a nominal annual amount which can be up to £250 – £350 and can rise, for example, every 25 years, either by a set amount or commonly in line with inflation. However, some landlords have included lease clauses where the ground rent doubles every 10 years, or even more often, which can prove costly for the leaseholder. Your solicitor should consider this for you in detail in any event but you need to be aware that this may cause issues and delays to your purchase if the ground rent provisions are not acceptable and need to be changed.
- Service charge cost and restrictions
Responsibility for managing, maintaining and insuring a leasehold premises usually falls on the landlord but is paid for by the leaseholders through a service charge. You should check the lease to ensure that how much the landlord can charge you and what they can charge for are reasonable and That you are not paying for something that you should not be paying for.
Current and historic accounts information should be provided by the seller so you are aware of the charges that have been levied in the past and also any likely to be levied in the near future.
- Major works
Before you buy, you should find out whether there are any major works planned for the building, for example, for exterior decoration or roof works. In many cases there will be a reserve or sinking fund in place to cover such capital expenditure but if there is not and you are expected to contribute towards the cost of the works, this could turn out to be very expensive. You will also have to contribute if there is a reserve fund but it is insufficient to cover all of the cost of the works.
- Administration charges
Administration fees are often charged by the landlord for things like granting approvals under the lease or providing information or documents. Fees may also be applicable if you fail to pay ground rent or service charges, or breach the terms of the lease. Your solicitor will check to ensure these are reasonable and advise you on these as part of the purchase.
- Property use restrictions
Binding covenants are sometimes included in the lease which restrict how you use the property (such as a ban on pets or require specific flooring to be laid in the apartment) or oblige you to do something (such as paying into a sinking fund). Again, your solicitor will review these to ensure these are not unduly onerous.
For further information on buying leasehold property, please contact Matthew Sabine in our residential property team in Heathfield, East Sussex on 01435 890 101 or email matthewsabine@hugheslaw.co.uk.
This article is for general information purposes only and does not constitute legal or professional advice. Please note that the law may have changed since the date this article was published.