More and more leasehold properties are coming onto the property market for sale as large town houses and old warehouses or buildings are being converted into flats to provide more housing. With leasehold properties, the land is owned by the landlord, also called the 'freeholder' and there are a range of issues you should be aware of:
Leasehold properties can generally be more expensive than freehold properties. The purchase price is paid for the property but there are also additional payments to be made at the time of the purchase and during ownership. Ground rent may be payable. Usually a service charge would be payable which is a contribution towards maintenance and upkeep of the building itself, or other grounds or communal garden areas. The Landlord may be responsible for insuring the building as a whole, but you would be asked to contribute towards the insurance costs. This is in addition to any mortgage payments and utility bills.
The Landlord may employ a managing agent. There could also be a management company, who in turn could also employ their own managing agent. Each would have their own costs and administration fees.
The terms of your lease
Additional legal obligations and restrictions apply for leasehold properties. For example you may need permission to make alterations and you may not be able to keep any pets at the property. Things that you may take for granted when owning a freehold property could need the prior written consent of a Landlord. If you do not comply with the terms of the lease or do not keep up with payments under the terms of the lease then the Landlord may have a right to take action against you, which could include forfeiting the lease.
It is important that you check the term of the lease. Many lenders will not lend on a lease if the term falls below 70 years. If you do not need a mortgage at the time of your purchase, you may still find it difficult to sell the property at a later stage as a future buyer may require mortgage finance.
Extending your lease
It is possible to extend the lease in some circumstances. The Landlord can grant an extension at any time. Once a leaseholder has owned the lease for 2 years a leaseholder could follow the statutory route and serve notice on the Landlord to extend the lease, if the necessary requirements are met. The lease would be extended for 90 years in addition to the remaining term. There will be fees payable to the Landlord (the premium) for the lease extension and there would also be legal fees to pay. This can be complicated and costly. It is recommended that if you are buying a property with a short lease that you ask the seller to deal with the lease extension before your purchase.
It may also be possible for a leaseholder to acquire a share of the freehold. This would give more control over the ground rent and the running of the building, costs and repairs.
Buying and owning a leasehold property can be complex. If you require further advice, please contact a member of our Residential Property team.
Julie Smith, Chartered Legal Executive, Residential Property