Many people are hesitant to buy a leasehold apartment/flat, due to concerns about the length of the lease, management rights and nasty hidden charges. But should these fears really stop you?
When you purchase a leasehold property, the key thing to remember is that what you are buying is a lease on the property, rather than the property itself. The property and land is owned by the freeholder, or the landlord.
Potential purchasers can be very wary of investing their money in property on a leasehold basis, but by knowing your legal rights, and having the lease and the management structure carefully checked, these concerns can be alleviated. It will also help you plan for the future and avoid unnecessary complications further down the line.
Ownership of your apartment
Not owning the land on which your property stands shouldn’t put you off investing in what could be your dream property – there are laws in place to protect you as the leaseholder.
You may be worried that the length of your lease will affect the resale value of your home. However, this only becomes a risk if the lease has less than 80 years remaining, and can easily be avoided by careful planning and extending the lease ahead of time.
Once you have owned your property for two years, you will be eligible to extend the lease by 90 years, plus the present unexpired term (usually for a nominal rent). If your original lease was for more than 21 years, this shouldn’t be a problem. Ensure your solicitor advises you of the duration left on the lease when you take it over.
If the freeholder decides to sell the freehold while you are in residence, you will be given the first right of refusal, and you will be able to buy the freehold of your home before it is offered to anyone else.
If, at any time, there are disputes with the freeholder concerning your lease, you can appeal to the Leasehold Valuation Tribunal.
Hidden costs
Service Charge
As a leaseholder, you don’t own the land your flat/apartment sits on, so you are not responsible for maintaining it. This is the landlord’s job. However, you will be expected to pay a service charge for this service.
Before purchase, your solicitor/conveyancer should ask to see the last three years’ service charge accounts. This will provide details of the amount attributed to your flat. They should also check if any unusual expenditure is contemplated within the next 2/3 years which could result in dramatic interest on the service charge levy.
Ground rent
Ground rent charges can only be increased if stipulated in the lease.
As long as you do your research, and make sure you’re aware of these costs before you enter the contract, there is no reason to let them put you off. You have the legal right to ask for a breakdown of how your money will be spent and how these estimated costs have been calculated, as well as the right to see any supporting documents such as receipts.
If you think any of these costs are unreasonable, you have the right to challenge them at a tribunal.
Building management
As a leaseholder, you might be worried that you are not in control of the building itself, particularly with regard to its maintenance.
If you’re unhappy with the management of your property, you can apply for the ‘right to manage’ this entitles you to take over the management of some the building, and is called enfranchisement.
To qualify for enfranchisement, the “qualifying tenants” must own at least two thirds of the flats in the building – a qualifying lease must have been granted for terms of at least 21 years. Buildings with four or fewer flats and a “residential landlord” do not qualify for enfranchisement.
A qualifying tenant cannot own more than two flats in the same building, and the participating tenants must be qualifying tenants and must own at least half of the flats in the building (and not more than two flats each).
A landlord can only block enfranchisement in very exceptional circumstances and usually only with the consent of the Court.
The cost of enfranchisement is dependent on the number of years left to run on the leases, and upon whether all of the qualifying tenants participate.
Selling your property
If your lease has over 80 years remaining, and the building is well managed, there should be no impact on the value of your home when it comes to selling.
To transfer your property to the new leaseholder, you must fulfil a number of requirements as per your lease. If you bought your home through a Housing Association or developer, they should be able to assist, liaising with solicitors and ensuring these requirements are met.
With the correct legal advice, buying a leasehold property is much less of a worry than people might initially think.
Author: Mike Carter, Head of Conveyancing at Paul Crowley & Co Solicitors, Liverpool
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Paul Crowley & Co Solicitors directly.