A rather pretty flat within a handsome period building located in the centre of London came up for auction recently, through McHugh & Co.
The property is worth £260,000, which I know for a fact. It was guided at £240,000 and sold on the day for £220,000, a considerable saving on the market. There’s some work to do: damp in the kitchen on one exterior wall, caused by a corroded lintel (one small crack in the concrete rendering having allowed rainwater to seep in over time and react with the building’s steel skeleton structure at this point). But the cause of the damage has been addressed by the landlord and repaired to a high standard and the internal remedial work is only cosmetic, costing no more than a couple of thousand pounds at worst.
I know all this because I, too, own a flat in the same block … and I’m also the landlord of the building. And I know something else, as well, which the purchaser doesn’t: in March of this year they’re going to be hit with a big bill by way of contribution to the property’s ongoing renovation programme, over and above their annual service charge, of some £4,500. Ouch.
How do I know they’re unaware of this? Because absolutely no one who bid on that property at that auction bothered to contact our Managing Agent and make enquires. If they had, he would have informed me. But they didn’t. Not one.
When buying a leasehold property at auction it is essential that you make such enquiries yourself in advance of purchase. Your solicitor nor your surveyor will do this; it’s not within their brief. You may assume that all relevant questions have been asked for the money you’re paying these professionals, but I can assure you that this matter will not have been undertaken; it’s something that you’ll have to take on board personally and in the absence of being able to talk to the vendor, the building’s Managing Agent is as near to the horse’s mouth as you’re likely to get. And grill them!
Remember, they’re being paid to address lessees’ concerns, and you’re a potential lessee. Talk about service charge rates and any proposed increases, whether contributions to a sinking fund are being sought, if and when renovations and/or building alterations are scheduled. You may even be able to find out information that the vendor doesn’t know, such as the hit we’re being forced to impose on lessees in March. Although we have not yet informed lessees, the Managing Agent knows all about this (it was his idea) and would be obliged to disclose the information to an enquirer.
A good Managing Agent, who is often also a surveyor, in most cases will know more about a building they’re responsible for, its state of repair and the running of its accounts, than the vendor. Find them, get through to them, interrogate them, use them. I guarantee that you’ll approach an property purchase better informed than the competition.
When it comes to buying a leasehold property, there are several important factors to consider to ensure a smooth and informed purchase.
Here are some pro tips for leasehold buyers:
- Understand the Lease Terms: Take the time to carefully review and understand the terms of the lease agreement. Pay attention to the lease length, ground rent, service charges, and any restrictions or obligations imposed by the lease. Consulting with a solicitor or conveyancer who specializes in leasehold properties can provide valuable insights.
- Check the Lease Remaining: Determine the length of the lease remaining on the property. A shorter lease may impact the property’s value and your ability to secure financing. Consider whether the lease can be extended or if it’s possible to negotiate with the freeholder to extend the lease before committing to the purchase.
- Assess Ground Rent and Service Charges: Understand the financial obligations associated with the lease. Review the ground rent and service charges, and ensure they are reasonable and affordable. Consider any anticipated increases over time and how they may impact your budget.
- Research the Freeholder: Find out who the freeholder or landlord is and research their reputation and track record. Check if they are responsive to maintenance and repair requests and whether they have a history of increasing service charges significantly. This information can give you insights into the overall management of the property.
- Explore Management of the Property: If the property is part of a larger development, investigate how it is managed. Understand the role of the managing agent or residents’ association, their responsibilities, and their reputation. Look into the quality of maintenance and the provision of communal facilities.
- Consider Future Saleability: Assess the potential saleability of the leasehold property in the future. Determine if there are any restrictions or clauses in the lease that may deter potential buyers. Being aware of any limitations can help you make an informed decision and mitigate potential challenges when it’s time to sell.
- Seek Professional Advice: Engage the services of a solicitor or conveyancer experienced in dealing with leasehold properties. They can guide you through the legal complexities, review documents, and ensure your interests are protected throughout the transaction.
By following these pro tips for leasehold buyers, you can navigate the intricacies of purchasing a leasehold property with confidence. Conduct thorough due diligence, seek professional advice, and understand the long-term implications of the lease terms to make an informed decision and enjoy the benefits of your new home.
What is Leasehold?
Leasehold is a type of property ownership commonly found in the United Kingdom and some other countries. It refers to a situation where a person owns the right to use and occupy a property for a specified period of time, known as the lease term, but does not own the land on which the property is built. The land and the property are owned by a separate entity, known as the freeholder or landlord.
Under a leasehold arrangement, the leaseholder has a legal agreement with the freeholder that outlines the rights and responsibilities of both parties. The lease typically includes details such as the lease term, ground rent (an annual fee paid to the freeholder), service charges (contributions towards the maintenance and management of the property), and any restrictions or obligations imposed on the leaseholder.
Leasehold properties are commonly found in apartment buildings, flats, and some houses. The leaseholder has the right to live in and use the property during the lease term, subject to compliance with the terms and conditions of the lease agreement. However, ownership of the property and the land ultimately reverts back to the freeholder once the lease term expires, unless the lease is extended or renewed.
Leasehold ownership carries certain advantages and considerations. It provides the opportunity for individuals to own a property at a more affordable price compared to freehold ownership. It also allows for shared responsibility for the maintenance and management of communal areas in a larger development. However, leaseholders may be subject to certain restrictions, such as obtaining permission for alterations or paying fees for lease extensions or leasehold enfranchisement.
It is important for leasehold buyers to carefully review the lease agreement, seek legal advice, and fully understand the rights and obligations associated with leasehold ownership before committing to a purchase.
Leasehold FAQs
Is buying a leasehold good?
Buying a leasehold property can have its advantages, such as lower upfront costs compared to freehold properties. However, it is essential to consider the terms of the lease and potential disadvantages before making a decision.
What are the disadvantages of buying leasehold?
Buying a leasehold property comes with a few disadvantages, including potential ground rent increases, limited control over the property, restrictions on alterations, and the possibility of lease extensions or renewals being costly.
What does it mean to buy a leasehold property?
When you buy a leasehold property, you own the right to live in the property for a specific period, as stated in the lease agreement. However, you do not own the land on which the property is built.
How does leasehold work in the UK?
In the UK, leasehold means you own the leasehold interest of a property for a fixed term. The lease agreement outlines your rights and responsibilities as a leaseholder, including ground rent, service charges, and any restrictions or obligations.
Do banks lend on leasehold properties in the UK?
Yes, banks do lend on leasehold properties in the UK. However, some lenders may have specific requirements or restrictions regarding the remaining lease term, ground rent, and other factors. It’s important to check with your lender or a mortgage advisor for more information.
Can you let out a leasehold property?
In many cases, you can let out a leasehold property. However, it is crucial to review the terms of the lease agreement as some leases may include restrictions or require consent from the freeholder or management company before subletting the property.
Do you own the building in a leasehold?
In a leasehold arrangement, you do not own the building itself. Instead, you own the leasehold interest, which grants you the right to occupy the property for a specified period.
What is the difference between freehold and leasehold?
The main difference between freehold and leasehold is ownership. With freehold, you own the property and the land it stands on outright. With leasehold, you own the right to occupy the property for a specific period, but the land is owned by a freeholder.
How long is left on my leasehold?
The remaining term of a leasehold can vary depending on the initial lease agreement and any subsequent extensions or renewals. To determine how long is left on your leasehold, you can refer to your lease documents or consult a solicitor who specializes in property law.