Things to Consider when buying a Leasehold Property
Posted on 26 July 2018 by Laura Godfrey
Maisonettes, Apartments or Flats are typically sold as Leasehold titles. This is because, in contrast to a freehold title where you own the Property outright with limited interaction with your neighbours, with leasehold titles neighbours have interdependent relationships. They may share common access ways, share shelter from a common roof or have pipes and services within a building which serve a number of Units. As a result the tenants/leaseholders typically contribute regularly towards jointly maintained facilities.
For these reasons in leasehold developments there is usually a controlling body known as the "Landlord" who may be an individual or a company who retains ownership of the freehold title and who has the responsibility of managing the relationships of their "Tenants/Leaseholders". In larger developments/buildings the Landlord may delegate management functions to a “Management Company” which may be run by the leaseholders on a ‘not for profit’ basis or be run by a professional management company. You will on occasion also find with larger developments/buildings that the Management Company will in turn instruct another company to act as “Managing Agent” who will deal with the day to day running of the development/building.
The interrelationships between the Landlord, the Tenants/Leaseholders, the Management Company and the Managing Agent of the Flats and the mechanics to ensure that the development/building should run smoothly is what we as Conveyancers seek to check when reviewing papers the papers for a leasehold property.
If you decide to buy a leasehold property there will be additional matters fro you to consider (in comparison to buying a freehold property such as a house), for example:
• Term of the Lease: The number of years left to run on a Lease affects the saleability and value of the Leasehold interest in the Property. This point is important to mortgage lenders, who will now typically only lend where the residue on completion exceeds 70 years (although we are experiencing increasing demand on sale transactions to extend leases where the residue is less than 80 years). Although it is possible to extend the term of a lease subject to meeting certain qualifications the procedures for doing so are complex and the costs can be expensive. It may therefore be prudent to establish before buying a leasehold property the likely cost of extending the lease.
• Ground Rent: Many leases provide for an amount to be paid to the Landlord on an annual basis. Also, many leases contain provisions for the amount payable to increase during the term of the Lease. It is important for your conveyancer to check that that this is paid up-to-date, and if it isn’t, to arrange with the Seller’s conveyancer for any arrears to be paid on completion.
• Service Charge: Tenants/Leaseholders are responsible for contributing towards the Landlord’s/Management Company's costs incurred in running the development, and this is known as the Service Charge. The Service Charge is normally paid in advance on the Landlord’s estimate of what it is likely to be. It is then adjusted in the event of a surplus or shortfall arising at the end of Service Charge Period, to take account of the actual expenditure incurred by the Landlord. By law, the Service Charges demanded by the Landlord must be reasonable and the Landlord is obliged to manage the properties in a proper manner. As with the Ground Rent, it is important for your conveyancer to check that that this is paid up-to-date, and if it isn’t, to arrange with the Seller’s conveyancer for any arrears to be paid on completion.
• Additional Leasehold Fees: Many leases state that the following post-completion matters must be dealt with:
o notice must be served upon the Landlord or Management Company regarding the change of ownership and if the Property has been charge to a lender;
o the new owner must enter into a Deed whereby they covenant directly with the Landlord or Management Company to perform and observe the covenants and other obligations referred to in the Lease;
o formal authority must be obtained from the Landlord or Management Company to the purchase of the Property; and/or
o a certificate must be obtained from the Landlord or Management Company confirming that the post-completion matters have been dealt with.
An administration fee may be charged by the Landlord or Management Company in respect of the above points. Your conveyancer will need to establish what additional fees are payable on completion and to whom they are payable. We then provide you with a completion statement detailing the applicable fees.
• Membership of Management Company: Many leases require that on completion of your purchase you must become a member of the Management Company. This means that it would be necessary for the Seller to transfer their membership in the Company to you, which your conveyancer would register on your behalf following completion. The Management Company sometimes charges an administration fee in respect of this process.
As you can see from the above, there are several different elements that we as conveyancers need to consider, investigate and report to you on in respect of buying a leasehold property. For this reason a purchase of a leasehold property tends to take longer to complete that the purchase of a freehold property; since we or the seller’s solicitor need to liaise with third parties including potentially the Landlord, Management Company and Managing Agent.
Our conveyancers have lots of experience of dealing with leasehold purchases and are therefore adept at managing the process and being able to reach completion for our clients in as quick a time as possible.
If you are considering purchasing a leasehold property then please feel free to contact any one of our conveyancers in our four offices for further advice and a quote for the conveyancing costs and disbursements.
Posted in: Buying & Selling Your Home