Clients Guide on what to check with their conveyancer when purchasing a leasehold property

You instruct a conveyancer to act and look after your interests when purchasing a leasehold property.   You go to that conveyancer to ensure he exercises the skill and care required to ensure that the property you are purchasing can become a home free of legal issues.  

As part of that due diligence process your conveyancer will send to you information about the lease as well as a copy of the lease for you to read through.   He will if he does his job correctly identify what might be wrong with the lease and what he suggests should be done to sort any problems.

This may all be very daunting and in effort to help you understand what to look for and what to query if your conveyancer fails to cover an aspect I have set out below some ( and it’s not intended to be an exhaustive and comprehensive list )  common points to keep in mind:

Have you been provided with a completed copy of the lease?

Has your copy been signed?

How many years does the Lease have to run?  If the remaining term is under 80 years you should seriously consider pulling out unless the seller is prepared to arrange for the lease to be extended before you purchase.

Does the property description in the lease mirror the property you are looking to purchase.  Check the lease plan against the floor layout shown in the sale particulars.  Take the plan and carry out a physical inspection of the property to check for discrepancies.

If you are told there is a garden and or car parking space then make sure this is included as part of the description of the property you are purchasing.

What parts of the property and the amenities are you required to share with other tenants?

Is there a right to pass to and from the property from the closest public highway? If not you may find that someone else could legally prevent you from accessing the property.

How much is the annual ground rent and service charge – can you afford these remembering they can increase depending on the clauses in the lease and the expenditure incurred by the landlord in the upkeep of the building and communal areas.

Check the rent review clause - the ground rent might only be £250 per annum at the time of purchase but this could by the end of the term be as much as a million pounds per annum!

Is there a management company and if so is it properly run and has accounts to show that it takes its responsibilities seriously.

Is the property adequately insured? 

What are the restrictions on use of the property?  Can you sub-let for instance and if so what conditions have to be met?

Even though the landlord is responsible for the upkeep of the property you should always get a survey undertaken since if there is major work required you and the other tenants will be required to contribute to that cost however much the expenditure might be.

Finally do consider carefully whether a leasehold property is for you  - many conveyancers including myself advise clients not to purchase this type of property unless there are very compelling reasons so to do. 

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

How does my lender affect my leasehold purchase?

Article by Katie Easter -  Trainee Solicitor with MJP Conveyancing 

Conveyancers acting for mortgage advisers are under the same obligations to the lender as they are to their purchasing clients. 

These obligations include adhering in the main to the CML Handbook, a set of rules written by the Council of Mortgage Lenders which must be followed when acting for mortgage providers.

How does the CML Handbook affect Leasehold property?

The nature of leasehold property means that there are more factors that can lead to it diminishing in value compared to freehold property.  Mortgage providers therefore seek to protect themselves should they need to repossess a leasehold property by imposing strict requirements. Solicitors are obliged to ensure that leasehold property meets these requirements.

One of the biggest factors affecting the value of leasehold property is the term of years remaining on the lease following completion. Each mortgage provider that subscribes to the CML has their own minimum term of years requirements. If the term of years remaining is predicted by the valuer incorrectly, it is important for solicitors to notify their mortgage provider clients accordingly. This is one of the reasons that we must have sight of the Mortgage Valuation Report prior to exchange.

There are also requirements for particular terms to be included in leases. These include the need for other leasehold properties in the block to provide support and shelter to the flats around them. When we review leases we are ensuring that they contain rights to support and shelter from the neighbouring properties. Without these rights, purchasers of leasehold property could face expensive repairs should neighbouring properties fail to support and shelter their own. This could affect a borrower’s ability to pay their mortgage and is therefore a concern of mortgage providers.

Ground rent should also be checked to ensure that there will not be any sharp increases which could affect a borrower financially. We will check the lease and may raise further enquiries with the Vendor’s solicitors regarding this point.

It is also important to gather information about any management companies. The following items must be obtained and checked by solicitors:

1.       The lease or another agreement with the management company must give the company a right to enter the property to carry out repairs or other works.

2.       The last three years accounts of the management company should be obtained.

3.       Any details of major works that will be paid for with service charge should be obtained. It will be necessary to notify a mortgage provider if these cannot be satisfactorily obtained.

The obligations that MJP Conveyancing owe to their clients’ mortgage providers therefore govern some of the leasehold enquiries that we raise with Vendor’s solicitors. Regrettably, this can lead to some delays when purchasing leasehold property but it is important to retrieve these answers for both our clients and their mortgage providers. 

This is also why we always ensure that leasehold packs are ordered from management companies as early as possible when we are acting for clients that are selling their leasehold properties. 

Caveat emptor - Leasehold buyers beware!

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. 

Buy to Let tips

There are several reasons for looking at property to purchase for the purpose of letting.   

Property prices are still falling and providers of mortgage products for buy to let are offering competitive rates.   Added to this we are experiencing a rise in rents due to a shortage of good rental property.  The shortage of mortgages with a high LTV (loan to value) has led to an increase in interest in rented property.  In line with our friends on the Continent the focus is now beginning to move away from home ownership towards rental.

So what do you need to look out for if you are looking to enter this market?  To begin with the property is likely to be in the lower price bracket and will therefore need to be chosen carefully.  

Start with speaking to the selling agent and find out what rental income it is likely to generate, whether there are comparable properties that can considered and more importantly whether there is a high demand for rentals in that area.   Check that the selling agent has experience in the rental market.  This is an important exercise because your mortgage company will be looking at the rental value when it comes to valuing the property for security purposes. 

Make sure you always invest in a full survey.   This is likely to cost around £400 and will be worth every penny.  You need to make sure there are no hidden surprises such as the need for a new roof or other  major works that could upset your financial calculations and turn a profitable investment into a drain on your resources.  Don't do what a large number of purchasers do and rely on the mortgage valuation.   This is dangerous because the lender's surveyor is only only interested in making sure the property offers adequate security for the loan. 

A survey may also help you secure a reduction in the selling price.   I act for a number of investors in property and in my experience you can normally with a full survey look to save around £2000 on the agreed price.

Many of the investment properties on the market are flats or leasehold properties.  Approach these properties with extra care.  They are often cheap because the unexpired term of the lease has fallen under 80 years.   The reason for this is that once a lease falls below this threshold the cost of extending the term can prove prohibitive.  

Leasehold property can also come with hidden cost which again if not checked can turn a potential investment into a loss.   Most properties require the owner to pay a service charge and ground rent.   Typically this will be around £1200 per annum and needs to be factored in when looking at the expected return.

You should always ensure extra funds are set aside to cover any major work that might have to be undertaken to the property.   Redecoration to the common areas of the building and replacement of lifts can often cause the service charge to increase significantly.  A new lift can cost around £100,000!

There may be a reserve fund set aside for major works of this type.   If there is not I personally would not purchase unless I knew what work was likely to take place within the next 10 years. 

Being a landlord is not just about collecting the rent.  There are a raft of legal obligations to meet relating to  deposit holding gas electricity just to mention a few.  Make sure the surveyor is told you intend to let so that he can check out the gas and electricity installations.  I recently  had  a client complain because on completing the purchase of a buy to let property she found the gas fire in the lounge was not working.  I politely reminder her that she was advised to arrange a full survey before committing to the transaction.   Cutting corners to save money can often prove to be  a costly mistake. 

The last and most important piece of advise is to always choose the right solicitor to act for you.  Choose someone like me who has experience in this field and who knows what to look for particularly when it comes to purchasing a leasehold property.  This is a specialist area and requires expertise.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Don't buy leasehold property without reading this...

Buying a leasehold property is not as straightforward as you might think.    Nor is it cheap.   You need to make sure the selling agent specializes in this type of property, and you are given all relevant information so you can make an informed decision.  

Look out for the hidden costs. 

Most leasehold properties include common and or shared areas and responsibility along with the cost of maintaining these parts is shared between the tenants.   The expense is called a service charge and this can often be high and burdensome.   

Often responsibility for collecting the service charge rests with a commercial agent or Management Company.  Upon completion of your purchase the agent or Management Company will expect you to pay a fee for lodging notice of your new ownership as well as your mortgage.   They may also require you to enter into an agreement with them direct to make sure you take over responsibility for payment of the service charge.   They may require you to pay an additional fee for lodging this agreement.  You may also be required to acquire a shareholding in the management company for which a further fee might be payable.

The landlord may also be planning to undertake major works such as replacing the roof or external painting.   Sometimes there is money set aside for these extra works.  Often there is not.  If there is no reserve then you could find yourself having to make a contribution towards the cost of these works and this could mean having to pay out thousands of pounds.

Your solicitors will also be looking to charge you more for the work.   This is because there is far more work involved when checking the lease and other legal aspects.

Check the length of the lease and how much of the term of the lease is left to run.   If the remaining term is under or close to 80 years then you should consider carefully with the agent or your solicitor how much is will cost to extend the lease.   It becomes more expensive to extend a lease that is under 80 years.  Keep in mind your lender may not be prepared to lend to you if the remaining part of the lease is under a certain limit.

Beware of rent review clauses.  Plenty of leases contain oppressive review clauses that can result in substantial increases in the level of future rent.

In short make sure you seek expert advice from a solicitor who has experience in this area.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Ideal time to purchase your freehold or extend your lease

While we are all concerned that house prices have diminished over the last few years and with the suggestion of the period of decline flattening out as Leaseholders this could be an ideal time to buy the Freehold to your Properties or Extend your current Lease!  

If you have owned your Leasehold Property for a period of 2 years or more you may together with your fellow Lessees be in a position to force the current freeholder to sell to you thus taking control of your leasehold future and with the valuations being at their lowest level for some time this may be the ideal time to do so.

At Morgan Jones & Pett we are able to offer specialist advice regarding your rights to purchase your freehold by way of collective enfranchisement  or extend your lease as well as complete the same on your behalf. Email andrewskuse@m-j-p.co.uk 

Should I extend my lease or leave it at is?

Some clients are put off by the expense and time taken in making an application for a lease extension. However putting things off only makes it worse as the shorter the lease gets the lower its value becomes and the more expensive it can be to extend or to buy the freehold.  

At MJP we have expertise in this field and can help you make the right decision.  For a FREE consultation please call either David Jones or Andrew Skuse on 01603877000 or email davidjones@m-j-p.co.uk or andrewskuse@m-j-p.co.uk

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk