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Leasehold Properties

Before buying a leasehold property it is important to be aware of what your lease includes and also to understand the implications of being a leaseholder. 

If you own the freehold to your property, your own the house itself and also the land that it sits on. If your home is leasehold, this means that you own the property on a lease for a fixed period of time and usually pay an annual rent (ground rent). The length of a lease is a set term and can range from 99 to 999 years long. 

Ground rent is a yearly charge which must be paid to the freeholder. A demand for payment will be issued to you. The initial rent will be a fixed amount however many modern leases contain clauses which allows the freeholder to increase the rent at certain intervals throughout the term. This can be a set amount or a figure to be determined at each review. 

Depending on the type of leasehold property you own, i.e. house or flat, your lease may also contain a provision for the payment of a service charge. This is in addition to ground rent and is usually a contribution towards shared facilities or the upkeep and maintenance of a development or building. A service charge is usually reviewed on a yearly basis and depending on expenditure for the previous year, can fluctuate. Payments for this are usually made monthly or quarterly. 

Service charge and ground rent information should be reviewed thoroughly before committing to a purchase. Mortgage companies have strict requirements regarding both of these aspects of leasehold properties. 

Following completion of a leasehold purchase, it is a requirement of a lease for your solicitor to notify a landlord/freeholder of a change of ownership and to provide them with details of the new owners including any mortgages that have been used to buy the property. A freeholder will usually make a charge for receipting a notice and fees for this can vary. You should expect to pay this fee as part of your completion and your solicitor should be able to confirm the amount for you. Certain leases may also contain administration charges for the buying or selling of a property and again this should be looked into before committing to a purchase. 

It is not uncommon for the freehold to your property to change hands so you may not have the same freeholder throughout your ownership.

In addition to the above, covenants are also another aspect of a leasehold property that need to be considered. These are do’s and don’t’s which you will be expected to adhere to throughout your ownership. They may include restrictions on what you can and can’t do and have requirements when you come to sell. It could be the case that you need to apply to your freeholder for what is known as covenant consent to make any structural alterations or additions to your property. This form of consent is different to any planning permission or building regulations approval that may also be needed. A freeholder with usually charge a fee for giving consent and costs can vary depending on the individual landlord. It is recommended that you obtain such consent before starting work on your property – applying in retrospect for consent can be more costly should you need to apply for this at a later stage and can delay a sale. 

To conclude, points to consider when buying a leasehold property would include, but not be limited to the following: -

  1. The length of the lease.
  2. Who is the freeholder?
  3. Ground rent, how much is it, when is it payable, details of any future rent review clauses.
  4. Is there a service charge? If so, how much and when is it payable?
  5. Are there any unusual covenants which could affect your use and enjoyment of the property?
  6. Are there any additional fees to be paid on completion of your purchase or on a sale to comply with the terms of the lease?