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As the famous saying goes, an Englishman’s home is his castle – or is it? If you’re buying a leasehold property, you might just find that there are a few hidden aspects to take into consideration before signing on the dotted line.
With an estimated 1.577 million leasehold owner-occupied properties not legally “owned” by their leaseholders and 42% of leaseholders not knowing the length of time left on the lease, it is hardly surprising that there has been a rise in concerns among this group of homeowners.
If you are planning to buy a leasehold property for the first time, make sure you know how long is left on the lease. In most cases, it will be for an extremely long time, perhaps up to 999 years, but you could also consider purchasing the freehold after a period of two years. This can be done under the Leasehold Reform Act 1967, which determines the correct rights to the property, serves a notice and reaches an agreement for transferring the freehold.
Unlike with a freehold property, leaseholds usually come with a number of associated costs, such as service charges and/or ground rents. These are all things that need to be budgeted for as part of your initial purchase.
For example, you may need to pay a fee for the Deed of Covenant – this is essentially confirmation that you will accept the restrictions on the use of the property, otherwise known as a “covenant”. It is normal for such restrictions to exist on a leasehold property and you will need to sign the deed in the presence of a witness.
Another common cost associated with leasehold property is with service charges or ground rents – and these can prove to be pricey. They are usually paid in advance for the year, either once a year, six monthly or quarterly. It does mean that if charges are overpaid, the property owners may ask to be reimbursed – however, it can also work the other way, so approach with caution!
It is not uncommon for a Lease to have onerous provisions and in that event, it is vital to insist that alterations are made to the Lease by way of Deed of Variation. In some circumstances, the Lease in the current form will not be “lender-compliant” which in essence means a mortgage lender will not lend against the property. This will reduce the value of the property, making it potentially unsaleable.
An example of an onerous provision would be in the event of the Rent Review clause requiring the Ground Rent to be doubled as regularly as every 5-10 years. You may be familiar with the recent press reports on this exact issue and it has caused a lot of issues for a number of people where their leases were not checked properly when they purchased. Doubling Ground Rent is something which must be avoided at all costs and something which the mortgage lender will refuse to lend against.
Finally, you might also want to be aware of any clauses that relate to consent to alteration. You landlord may charge a fee for you to carry out works to the property or let it to a third party. This is particularly important if you are buying a property to let.
A good solicitor will be able to help you with all of these issues. They can complete investigations on property, liaise with property management companies and landlords or simply advise on any other aspect of buying a leasehold property. Downs Solicitors’ conveyancing team can help – contact us for more information.