Buying Leasehold - What Do I Need To Know?

mr_fishbulb

Hi All,

My girlfriend and I are FTBs and are going to be looking for places around South-West London soon. I've seen some places advertised as leasehold but wondered what the implications were of that.

I know you are buying a lease (albeit a long one) for the property rather than buying the place freehold, and I know that there shouldn't be much problem with a mortgage providing the lease has long enough left to run.

But what else do I need to be aware of with a leasehold?

Are there any costs that have to be paid to the owner of the property (ground rent and service charges)?

Does it have any effect on the resale price?

Will we be able to make alterations to the property without getting the freeholder's permission?

Is the freeholder liable for any repairs/maintenance?

Anything else I haven’t thought of?

Thanks

cattie

Yes there usually are service charges & ground rent to be paid. The highest service charges are usually paid for flats in blocks. Generally the service charge includes buildings insurance too.

The freeholder is responsible for external repairs & maintenance, but unless the service charge includes an amount put aside in a fund for this, then the cost has to be met seperately by leaseholders. The internal space is your responsibilty & yes you do need the freeholder's permission to make alterations.

A high service charge will affect the resale of the property in that it will put some prospective buyers off. Ground rents are generally quite low on the whole.

Go for the longest lease you can possibly find, try to avoid anything with less than 85 yrs left. Don't believe anybody, be it vendor or estate agent selling a property with a lowish length lease, say under 80 yrs & stating that it won't cost too much to extend it. If this is true, then why hasn't the vendor had it extended & thus achieved a better price for the flat because of this?

Once you've owned a property for 2 yrs you can apply to the freeholder to extend the lease or if it's a block & other leaseholders are in agreement, collectively buy the freehold.

Leaseholds are common in London & as long as you chose wisely they are problem free.

mr_fishbulb

Cheers cattie

Ian_W

Hi mr_fishbulb,
I'd go with all cattie says except one point, AFAIK there is nothing to stop you applying to the freeholder at any time to extend the lease, the 2yr qualifying period relates to your statutory right to an extension, you can negotiate an agreed extension on the first day you own. However, as cattie says best to steer clear of short leaseholds in the first place as the freeholder holds a lot of the cards when it comes to pricing an extension.

All I would add in respect of flats is to pay particular attn to the communal areas, if they're well tended, clean and look as if they're being well maintained it's a very good sign particulaly if the ground rent and service charge look reasonable compared to others you view. My experience, though others may disagree, is that where the residents manage the building themselves they usually do it better and cheaper than a third party management company particularly where they have a "sinking fund" which covers regular but not annual work like communal and outside decoration. The opposite can be the case though on smaller blocks where one awkward resident can block much needed work.

If you're also looking at houses as well as flats, some of them are leasehold too. Generally the same consideration apply except often there isn't a service charge, just ground rent and you're responsible for the external upkeep of your house and your own building insrance.

HTH and BoL with your search, you've been around MSE long enough to have read many of the threads that show problems that can arise when buying so you're in a better position to tackle them than most FTBers. Let us know how you go on.

dander

And worth noting that if you're buying a flat then leasehold is actually the more normal way for things to be - and what mortgage companies prefer to lend on. Reason being that with leasehold flats there are clear written rules about how the property will be maintained, but shared freehold tends to be less clear and therefore (in the eyes of the mortgage cos) more likely to see disagreements which cause maintenance to be neglected.

For instance, if you are buying the top flat in a converted house, and you start to get leaks and realise the roof needs seeing to. Who pays? You because yours is the only flat directly affected, or is it shared? If it's shared, what do you do if the other flats don't play ball?

When you're looking around shared freehold places, be sure to talk to the owners about how this works.