Buying a flat - leasehold and other things

VXman

We are looking a buying a flat for our son. Never bought a flat before. Could some nice people give me a little background knowledge on stuff like leasehold, management fees, Ground rent etc. Really want to know what additional costs there are on top of buying the flat, how shared spaces work. Generally it is small houses split into 2 or 3 flats that we are looking at - not big blocks. Treat me gently I really do not have any knowledge in this area and my son has always rented.

tacpot12

Small houses split into 2 or 3 flats can problematic if the other leaseholders don't get on. Sometimes it is better to be in a larger block with an established management structure. Sometimes larger blocks can have problems too. At least with a freehold house, the problems are your own, or yours and your neighbours...
So nothing is straightforward when it comes to property.
 
The basics of leasehold and some related advice: 

• You own the property for the duration of the lease.
• Properties with leases of less than 100 years are difficult to sell. Make sure the lease is for at least 120 years.
• You can force the freeholder to extend the lease, but will have to pay a reasonable price for this.  
• Read the lease very carefully.
• Pay a solicitor to review it and explain in layman's terms what it means.
• Ground rent is really only there to underline the legal fact that the freeholder owns the property, and the leaseholder is merely "renting" it. There is no reason for ground rent to ever increase, except that it costs money to collect it, so because the cost of collecting any ground rent increases overtime, it is often the case that the lease sets a basis for the ground rent to be increased. Don't sign a lease where the ground rent can increase by more than CPI, and ideally a bit less than CPI. 
• Leaseholders have to pay their fair share of any major works that need doing to the building, e.g. replacing the roof. The Freeholder has to issue notices and undertake consultations about major works. See here: What is the Section 20 consultation process for major works? - The Leasehold Advisory Service (lease-advice.org)
• Check if any Section 20 Notices of Major Works have been issued (best to ask the vendor and the other leaseholders). Ask the Freeholder if there are any Major Works they are aware of that they haven't issue a Second 20 Notice for OR were Notices have been issued but the Leaseholder's have not yet been asked to pay their contribution. Factor these into the purchase price.
• Any survey should survey the entire building to help assess if the freeholder is aware of any disrepair to the building.
• Check what control you/your son will have over the management charges. Sometimes work gets done, but at a very high price. Other times, the work that the management charges are supposed to cover doesn't get done at all.
• Check the flat has a fire door with smoke seals. Get the surveyor to check this if you don't know how. Also have the surveyor check that each flat is a proper fire compartment.
• Check the EPC and the heating system. Electric only heating can be very expensive. 
• Check who the lease makes responsible for arranging the buildings insurance. 

 

greatcrested

Buying Your First Home Handbook

How to Buy Your First Home

NameUnavailable

Some of this will be repeating what is above but bear in mind that you are buying a lease - a bundle of sheets of A4 paper that gives you the right to live in the property for X number of years, subject to various terms and conditions.

Don't buy anything with high ground rent (that's £1K or more in London or £250 elsewhere). It becomes and assured shorthold tenancy if the ground rent is over these figures and at these levels (as most leases include clauses that the ground rent will increase over time) lenders may refuse to lend so buying or selling becomes problematic.

Check the maintenance charge. High charges will affect the value and saleability of the flat. Bear in mind that the maintenance charge (if there is one) is for the bare minimum - it mostly just covers the costs of having a management company, buildings insurance and incidentals. When any costly work is required you will get a demand which usually has to be paid within 30 days (yes there is a process they have to go through to advise of the intention to carry out works and obtain quotes). Some people in larger blocks are finding themselves faced with bills of £75K for remedial works to cladding for example, and many are facing bankruptcy. There is no cap on what a freeholder can charge you each year for maintenance.

On the other hand if there's no management company or regular maintenance charge that can give rise to other issues - getting necessary work done when others refuse to co-operate or contribute. The freeholder has to step in to take action to enforce payment etc. If people are sensible however it works well as you aren't paying the salaries of a management company, just the actual work required.

When looking, ask what work has been done recently and what if any work is coming up. Some people will sell to get out before huge bills are due! Look at the general state of the place, does it look well maintained or does it look like there's a number of jobs that will need doing?

Beware of anything newish with cladding or balconies - look up ESW1 scandal.

If all this makes buying a flat right now sound risky, well yes, it is! But of course for most people who buy a flat it's the only option.

bouicca21

Get hold of a copy of the lease and read it.  It will set out what you can and can’t do with the property, what the length is (don’t believe what the EA tells you) and whether there is any escalation clause regarding ground rent.  It’s worth asking to see previous service charge demands just to confirm the sort of amount that is likely to be charged, on the sort of property OP is suggesting the service charge shouldn’t be too high, but it is worth finding out for example if there is a cleaner for the communal areas - though in a small property people might just muck in and do it themselves.  Ditto a gardener if there is a communal garden.

mrsaver11

It bears repeating even if NameUnavailable already mentioned this: DO NOT GET A FLAT WITHOUT A VALID EWS1 FORM. What happened with Grenfell means that for better or worse, it's required now.

Your lender may refuse to give you a mortgage, or worse, you will be able to buy it, but the flat becomes a ticking timebomb that you will have difficulty selling or remortgaging in a few years.  EWS1 certification may take some time and expense to get done, so you really want to know that you have one available even before seriously thinking of pulling the trigger on your purchase.

I'm saying this so that you avoid the faff I'm going through right now. I'm a FTB who wasn't aware that EWS1 is required now, and both me and the seller are very stressed out due to how this has been blocking the purchase process.

VXman

Surely not needed on a standard 2 storey house construction? I had a friend struggling selling a flat recently because buyers solicitor was demanding one. It was a 2 storey brick built apartment complex with no external cladding. He eventually sold it without. I get the feeling that there has been an over reaction and Solicitors/banks are demanding things which are really unnecessary. Ours will be a cash purchase but my concern would be when it comes to selling on later.

lookstraightahead

Can I ask - do all apartment buildings need the ESW1 form? Like four storey houses/maisonettes etc? Sorry to jump on OPs thread.

Racky_Roo

I've owned a few flats and would definitely recommend buying one with a share of the freehold rather than leasehold as it means (apart from other things) you have more control over what you can and can't do and don't need to worry about lease length as you and the other freeholders own it between you and can extend it whenever

I also would say, don't put up with a rubbish management company, switch if they aren't doing what you pay them for. Personally I wouldn't move to a block which self manages either as there's always one person in control who uses it to annoy everyone else. But that's my experience!

cattie

I've owned a few flats in my time too, both general leasehold & with share of freehold.  I will say that I don't agree fully with tacpots comment on lease length. Many leases start off at 99yrs, so don't be afraid of those, they are not difficult to sell, they do become harder to sell once the lease drops close to 80yrs however. Although I once sold a flat with a lease of 78yrs remaining, which I sold with no problem very close to asking price & giving me a great gain over the price I'd paid for it originally. It was in a good & central location though.

Most ex local authority homes are granted a 125yr lease at point of sale, but you need to be careful when a council is the freeholder as service & maintenance charges can be overly high, especially in blocks with lifts.

When looking at flats that have been converted from houses, I'd be rather wary of ground floor flats (noise from flat/s above, stairs & ins & outs of front door). Purpose built flats won't tend to have the same issues.  

It's unlikely you'll get to see the lease before starting the purchase, this is something the solicitor will usually request & advise you on, but don't take an estate agents word on length of lease or service charges as they'll not have seen lease either so they can only guess from info vendor might have given them. Quiz vendor over these points & as mentioned, solicitor will go over these points with you. 

davidmcn

lookstraightahead said:

Can I ask - do all apartment buildings need the ESW1 form?

No, it seems a bit of an overstatement to suggest that. Around here, flats are mostly in 100+ year old buildings with solid sandstone walls - I doubt anybody really needs a certificate to confirm they're not an inherent fire hazard.