The difference between freehold and leasehold is if you own a leasehold property you do not own the building or the land it sits on, instead you have the right to occupy the property for a fixed period of time.
Here, writes Charlotte Ribbons, Trainee Solicitor with MJP Conveyancing, are some areas savvy leasehold buyers need to make sure they are clued up on before purchasing:
The 'term' of the lease is important. This can typically be between 99 and 999 years. Mortgage companies will usually require there to be 70 years remaining on the term before they will lend. This is an area cash buyers should not ignore because if you later come to sell the property to a buyer needing a mortgage this will matter! It can be costly and time consuming to extend the lease term; what might seem like a 'bargain' may not be in the long run.
Ground Rent - know your figures! This is the rent payable to the Landlord or Freeholder. It can be fixed or escalating. Your solicitor should draw this to your attention. Where there is a complex escalating clause you may need to seek further advice from a surveyor.
Service Charge - it's important not just to know what this years’ service charge is going to be but what future service charge costs are likely. The Lessor Pack should include the statements of accounts for the last three years. Does the charge keep increasing? If so, why?
If the accounts aren't in a healthy state this should ring alarm bells. Find out more about the Management Company and how efficient they are. The best way to do this is to speak to existing tenants and see what they have to say.
It is possible that the service charge accounts for the current year are not yet finalised. In this circumstance your competent solicitor may seek a ‘retention’ to cover this. This would mean a sum of monies from the sale proceeds are held back to pay for this cost once the amount is known.
Survey - the importance of having a survey carried out cannot be emphasised enough. Whilst the Lessor Pack can reveal major works which are anticipated, a survey will also be a valuable tool in this regard. If major works are required, once you become the owner of the property you will be responsible for paying a proportion of the cost. What may seem like a bargain may not be quite the investment, once factoring in paying towards the cost of a new roof!
Flooding- Just because you may be occupying the third floor does not mean flooding will not affect you! If the ground floor is flooded you will not be able to access your property, structural damage may be caused and key elements such as lifts may not function. Estimates from the British Property Federation and Leasehold Knowledge Partnership show 70,000 leasehold properties are at high risk of flooding.
This could leave you at risk to potentially huge increased premiums, particularly as it is still unknown, but considered likely, that leasehold property will be excluded from the national flood subsidy scheme.
The key to purchasing a leasehold property is to make sure you know exactly what you are purchasing, what your obligations and what the likely costs are now and in the future!
Disclaimer: Please note this article does not constitute as legal advice and is for reference only.