There are extra considerations that you must think about when buying a leasehold property over a freehold one. For an explanation of the differences between freehold and leasehold, see my earlier post here.
To summarise, if you buy a leasehold property, you own the dwelling but not the land it stands on. In this arrangement, you’re known as a ‘leaseholder’. On the other hand, when you buy a freehold property, you become the sole owner of both the building and the land. Depending on whether you buy a freehold or a leasehold, there may also be limits on what you can do to your own home.
In England and Wales, flats are most commonly owned on a leasehold basis, while houses are normally sold as freehold properties – however, there are exceptions.
Leaseholders have to get permission from the freeholder to make certain alterations to the property. They will also have to pay rent each year – known as ‘ground rent’ – and often have to pay an annual fee to a managing agent.
Here are my top five questions to ask when thinking about buying a leasehold property:
1. How long is left on the lease?
Most lenders require a lease to have at least 85 years to run and anything below 90 years may make the property difficult to sell unless you pay for a lease extension, which can be costly.
Bonus Q: How much does it cost to extend the lease? The management company is unlikely to be able to give you an accurate fee until the day that you are ready to extend the lease, but you can get an idea of their fees. In terms of the premium, Martin Lewis has an excellent calculator at MoneySavingExpert which will give you an idea of how much this is likely to cost.
2. How much is the service charge/ground rent?
An obvious question perhaps, but this will tell you how much you will have to pay monthly or quarterly towards the costs of common parts at the property and will help you to budget once you move in.
Bonus Q: What are the provisions for these charges rising? There has been a lot in the news on this issue recently. It is worth speaking with your solicitor and checking the terms of the lease carefully to determine what provisions there are for these charges increasing. It is relatively normal for them to rise in line with RPI, but if there is provision for frequently doubling (e.g. every five years) or to be raised at the discretion of the management company, further questions need to be asked.
3. Are there any big items of expenditure anticipated in the near future?
Most management companies will keep a reserve for future works, although this is another matter to check. However, even if there is a reserve, any large items of expenditure (e.g. a new roof), may raise bills to be shared between the properties.
4. Has the management company experienced any issues in collecting service charges/ground rent from any other leaseholders?
This may cause issues in the deterioration of the block and communal areas, which may start to deteriorate as the charges fall unpaid.
5. What restrictions are there in the lease?
Make sure you find out if there is anything that is not allowed under the terms of the lease. For example, it is very common that pets are not allowed in certain buildings, or that washing may not be allowed on balconies. You don’t want to breach the lease on day one over a silly issue.
If you are thinking of buying a leasehold property and have questions, get in touch for a free consultation today.