Lease of Life! – Buying a Leasehold Property
If you read our recent summary on having pets in leasehold property then welcome to our follow up article on leases generally. If you are buying or have bought a leasehold property (probably a flat) then here is some important information on what it means to be a leaseholder
Every lease is unique. Leases within the same building (such as a block of flats) will be very similar, but are likely to be different from the leases over the block of flats down the road. Whilst most leases follow a general pattern, you should always treat your lease as an individual document, and shouldn’t assume that it will have the same or similar clauses as perhaps one you’ve owned before, or one that your friends or family own.
We’ve set out below an outline of the most important information that every lease should cover, but your lease may cover other things as well.
1. How long is your lease for?
Most residential leases are for 125 years from when they were granted to the first owner of your flat. So if the lease was granted 25 years ago, you’ve got 100 years left on your lease. That might sound like a long time, but mortgage companies can get a bit nervous about leases that are less than 80 years old, which means the older your lease is, the harder it could be to sell your flat in a few years time. If you’re worried about the length of your lease, look out for our forthcoming article on lease extensions, or drop us a line and we’ll help you decide if getting your lease extended is a good move for you.
2. What you are getting for your money?
I’m sure that sounds obvious – you walk in through the front door and everything the other side of the door is yours. Actually, it’s not always that straight forward. For example, if you are on the top floor, you may be able to access the loft space from your flat, but unless the loft space is specifically stated in your lease to have been granted to you, it doesn’t form part of your flat, and you may not be able to use it.
3. What you can do in your flat?
In addition to the issue of pets, there may be other restrictions such as whether you can run a business, the importance of not making noise (particularly late at night or early in the morning) what changes you can make to the property (there is likely to be a restriction on what you can do without landlord’s consent) and whether you can sublet. That last one is really important if you are buying a flat as an investment and plan to rent the property out or run an AirBnB typed business. Some leases will allow this, but you may need a licence from the landlord. This so they can withdraw the right if your tenants are difficult and noisy. Some leases will have an outright prohibition on this, in which case you need to consider carefully whether this is the right property for you. We can advise you on this, so long as you tell us that this is your plan. If we don’t know you plan to rent the property out, we will assume it’s going to be a home for you and we won’t be able to give you the right advice. Don’t forget, all the other leases in your building should have similar terms, so this can also work in your favour – if the lease is strict about noise, then all your neighbours should keep as quiet as you have to keep.
4. What other parts of the building you can use and when?
Some properties will have common parts, such as gardens, car parks and occasionally such luxuries as gyms or swimming pools. If the estate agent has told you about all the wonderful amenities that will be available to you if you buy the property, make sure you give us all the details so we can check that the lease gives you the unrestricted right to use those facilities. It would be very frustrating for you to buy a property believing it gave you the right to use a lovely garden next door, only to find that the garden has actually belongs to the neighbouring property and you don’t have the right to use it.
5. What’s it going to cost me?
In addition to the purchase price, there will be service charges and ground rent. Ground rent is often a nominal fixed amount that leaseholders pay to the freeholder, but sometimes they can be quite high and can increase over time. Service charges are the amount the freeholder will charge the leaseholders every year for running the building. This will vary widely depending on how big the property is and how many flats there are. For example, one building that is divided into three flats, with no gardens and only a small communal area, will have a small service charge budget. However a large block of flats, with lifts, gardens, a porter and car parks, will have a much larger service charge budget, although there will be more flats to split the costs between. The lease will tell us what is covered by the service charge budget. We will also ask the landlord to provide us with sets of accounts for the last couple of years, from which we can see important things like how much the service charges are on average, what the money is used for, and whether people are paying. A building where the service charge is high, and lots of other leaseholders are in arrears is a sign of trouble.
6. Who your landlord is.
Sometimes it might be a commercial company who run the building as a business. Or it might be that all of the leaseholders own and run the building themselves. The latter is often cheaper, as the leaseholders have a shared interest in making sure things are done properly but without spending money unnecessarily as ultimately they have to pay. However, if the leaseholders are in charge, they may have to agree (at least by majority if not unanimously) on what is going to be done. This can mean that reaching an agreement on big important questions, such as the installation of new lifts, or changes of managing agents, can take some time. Being owned by a commercial freeholder will often cost you more, as they are there to make a profit, but can also be more efficient.
Leases are fairly long documents (typically 40 pages) and are written in legal terminology which can be hard to follow, particularly if it’s an older lease where more archaic language was sometimes used. Whilst we do tell all of our clients that they should read the lease and highlight any areas of concern, we do our bit to make it as easy for you as possible. This includes producing a report on title, which gives a summary of all the things you should particularly be aware of in the lease, in the searches we’ve conducted on the property and in any questions we’ve asked the leaseholder and the freeholder.
The most important thing is for you to ask any questions you have, so you’re completely conformable and understand your rights and responsibilities. So if there is anything you don’t understand, just ask.
Express Conveyancing’s Specialist Leasehold Property Conveyancer’s act for hundreds of clients buying or selling Leasehold Properties each month. Contact us on 0800 799 9892 to find out how we can help.