Firstly freehold?

The freeholder of a property owns it outright, including the land it’s built on.  If you are looking to purchase to a house- make sure it is freehold.  There are very few situations where there is any justifiable reason for a house to be sold on a leasehold basis (unless the property is being sold under a shared ownership scheme).  A freehold house should set off “alarm bells”.

Practically speaking where a property is freehold, the owner is responsible for maintaining and insuring your property and land, so you’ll need to budget for these costs.

How is leasehold different?

With a leasehold, you own the property so far as it is described within the lease, but not the land, for the unexpired term of your lease agreement with the freeholder.

When the lease ends, ownership returns to the freeholder, unless the lease has been extended.

Most flats and maisonettes are owned leasehold.  The reason for this is that this method of ownership ensures that owners enter into covenants (legally binding promises) to comply with various restrictions which are necessary when sharing a building and grounds.

Leasehold properties may have differing methods in managing issues such as decoration, maintenance and insurance.  Most commonly the Freeholder will appoint a management company to collect contributions from the leaseholders to pay for such expenses. The advantage to this is that there is one point of contact  dealing with the administration of arranging maintenance and repairs and insurance and collecting the contributions and keeping accounts. Inevitably the management company will charge for this. The disadvantage may be the high cost or if you are unlucky, inefficiency if the company does not do a good job!

As part of the enquiries raised we will obtain the details of costs relating to the property as well as the accounts if available.  You must check through all the information supplied. It is a good idea to make enquiries via the estate agent to get a rough idea as to costs so that you can at least gain an idea as to whether the charges are affordable.

Give me some pointers on what to look for when buying a leasehold property (a flat)!

Put simply, when you buy a leasehold property (let’s call it a flat), you’ll take over the remaining term of the lease from the previous owner.

So before making an offer you’ll need to consider:

1.How many years are left on the lease.  If you think about it, as the lease becomes  shorter, its value decreases.

2. How much are the service charges and related costs.

3. Are the building and grounds well maintained?

Please explain why the length of the lease is so important…

Lenders have strict requirements on what they will accept as good security in terms of the length of the lease.  If the lease is for less than 70 years, you might struggle to get a mortgage, however the range of requirements is quite wide.  You should check your proposed Lender’s requirements if you are intending on taking a mortgage on the property.  If you are able to purchase the property in “cash” we would still strongly recommend that you investigate the unexpired term as at some point it is likely that the property will be sold to someone needing a mortgage.  Remember the shorter the lease the lower the value!

There is only 60 years left on the lease of the flat I am hoping to buy- can this be extended?

The owner of the flat can ask the landlord to extend the lease at any time.  If the landlord is amenable it is a matter of agreeing terms . Once you’ve owned your home for two years, you have the right to extend your lease by 90 years, provided you are a qualifying tenant.  Usually, you will be a qualifying tenant if your original lease was for more than 21 years- check this point with your legal advisor.  The cost will depend on the property and the unexpired length of the lease.

Find out more about extending the lease or buying the freehold of a house or flat on GOV.UK.

Please tell me more about the charges I can expect if I buy a flat…

Leasehold service charges

Service charges vary but usually cover expenses such as :

Maintaining communal gardens

Bills for communal areas/driveways

Repair and maintenance of exterior walls

External and common parts decoration

Buildings insurance

Ground rent

This is usually collected by the freeholder and the level should be checked before you commit to buy the property.  The ground rent is usually reviewed at designated times upwards. You should check the ground rent provisions with your legal advisor carefully to ensure you are comfortable with the current rent and the ground rent once reviewed under the terms of the lease.

Administration costs

Both the management company and the freeholder will routinely require legal documentation e.g notices and deeds of covenants to be completed and submitted with fees when the property is mortgaged or changes hands.  These differ between properties.

If you own a leasehold property, the repairs and maintenance on the inside of your property are usually your responsibility.  Do take care though to check what is required in terms of windows which vary greatly.

Altering a leasehold property

In order to ensure structural integrity and uniformity of decoration amongst other things, you’ll usually need to get the freeholder’s permission to make any significant changes.  The freeholder may refuse or consent conditionally upon payment of a fee and or a satisfactory surveyor’s report.

Benefits of owning a freehold:

You don’t have to:

Worry about the lease running out, as you own the property outright.

Deal with the freeholder (often known as the landlord).

Pay ground rent.

Be restricted by title matters should you wish to make internal alterations

Do bear in mind, however that it is increasingly common for developers to appoint a management company to administer and maintain communal areas on developments such as driveways and green areas.  As with a leasehold there may be costs and administrative procedure to be incurred and complied with . Check the situation with the estate agent before making your offer to buy.

Please also bear in mind that there may be title covenants (binding restrictions) limiting external alterations and additions – you should check with us if you intend to make such changes.

Benefits of owning a leasehold property:

The property itself may be less expensive then buying a similar sized freehold property.

Fewer worries in terms of arranging maintenance

Find out more about aspects of leasehold ownership at The Leasehold Advisory Service website.

With leasehold property, it must be remembered that owners are much more restricted in what they can do at the property.  Leases routinely restrict owners in terms of whether they can have pets at the property, whether they can hang out washing and renting out the property amongst other things.  This is to ensure that owners live in close proximity can hopefully live harmoniously.

Altering a leasehold property

In order to ensure structural integrity and uniformity of decoration amongst other things, you’ll usually need to get the freeholder’s permission to make any significant changes.  The freeholder may refuse or consent conditionally upon payment of a fee and or a satisfactory surveyor’s report.

A brief word…Commonhold properties

Commonhold is a type of freehold ownership.

It’s designed to help flat owners obtain “full” ownership of their property, instead of via a lease.  Currently this is a rarer form of ownership

This is achieved when the leaseholders within a building or block of flats come together to form a company, known as a Commonhold Association.  That company then owns the freehold of the building.

For more information on commonhold, visit  GOV.UK.

Scotland

As the system in Scotland is different, read more about buying in Scotland on the Scottish Government website