How to purchase a leasehold property
If you are considering putting in an offer on a leasehold property, you first need to find out the terms of the lease, particularly if it could already have been running for tens or even hundreds of years. A short lease, i.e. one with less than 80 years left, can affect your ability to secure a mortgage, so this will need checking before you put forward an offer.
Once you have owned the property for more than two years, you have an automatic right to extend the lease or purchase the freehold and this is something you could ask the seller to contribute towards, if you wish to proceed with the purchase.
A freeholder or ground landlord will charge for extending the lease and the cost will vary per property. In the event you cannot agree reasonable costs to move forward with a lease extension or purchase of the freehold, you can ask the Leasehold Tribunal to intervene. It may be advisable to speak to your solicitor about making the necessary enquiries before you proceed with the property purchase.
Paying ground rent
On any leasehold property, you will have to pay ground rent. This will either be a fixed or escalating amount.
The issue of escalating ground rents has been highlighted in the press recently and it is worth asking your solicitor to check it will not potentially rise to a level that may affect any future owner’s ability to secure a mortgage. If this does prove to be the case, the issue can be resolved, but will need to be done before you proceed with the purchase, at the seller’s expense.
There will be a number of restrictive covenants under the terms of the lease, detailing things you can and cannot do at the property. You will need to check they will not adversely affect the way in which you wish to live and you are happy to proceed with them in place.
A standard covenant that you will come across in all leasehold agreements is that you need to obtain the freeholder’s consent before making any extensions or alterations to the structure of the house.
If the property you want to buy is an apartment or comes with some sort of common land or facilities, you will also need to pay maintenance charges. Again, you should obtain details of these and ensure they are up to date and that the company dealing with communal services is run properly. Your solicitor will check all this for you and let you have the details to review before you proceed with the purchase.
In the case of flats, your solicitor may also suggest a retention is held to cover any shortfall in the maintenance and service charges during the sellers’ ownership.
There is one final type of tenure known as commonhold. This was introduced as an alternative to leasehold under the Commonhold and Leasehold Reform Act in 2002.
It is a system that allows you to own the freehold to a flat, whilst still being a member of the company that manages the shared responsibilities for communal areas, like staircases and hallways and being jointly responsible for their maintenance.
On commonhold properties, there are no landlords or leases and all residents are equally accountable. At the moment, however, it has not been embraced by the market and there are very few developments of this type in the country.
If you have a question about moving home, our residential property expert, Sarah Gaunt, would love to hear from you. Email: firstname.lastname@example.org