Things to Consider when buying Leasehold

LeafGreen

My brother and I are about to view a flat for sale, and are wanting to make sure we have considered all the implications of buying a leasehold flat, as neither of us have previous experience of this.  Info so far as follows:-
- Lease is 125 years minus 11 years since property was built.
- Service charges and ground rent are advised as coming to around £900pa.
- We (either jointly or my brother on his own - it would for him to live in) will be buying without mortgage from the proceeds of the sale from our inherited family home.
- Flat is electric only (no gas)
All this seems fine to me, but wanting to see if there is anything else we should be querying/bearing in mind before considering an offer once we have viewed.  
Thankyou All.

MgComp

Perhaps consider how long you will be living there, as if you plan to live there long term would the remaining years on the lease put future buyers off?

Many leasehold properties i've seen start at 999 years ( i thought this was the norm but maybe not) so 125 is a little scary to me but ultimately it's up to you and whether you're comfortable with that time frame.

need_an_answer

a lease property doesnt become an issue until the lease approaches 80 years or so in respect of mortgages etc.
Its reasonably common these days for the original lease to be 125 years certainly where I  live on something new built or recently converted,the days of the 999 year lease are slipping away fast!
I would ask for a little more info on the service charges,how much they have increased over the last few years and whether or not any major work is planned....this sort of thing will come up as part of the management pack if you choose to proceed but its always good to hopefully have a heads up when you are considering an offer.

I'm a LL and have 5 leasehold properties all with differing leases and conditions...maybe if you are considering a pet for example check the lease now or soon as some have restrictions.
Again something like major work on the property,windows for eg might need freeholder or management company approval....as long as you go into a lease knowing that its different to freehold in as much as you dont actually own the property and ceratn things will be governed by others then thats the major thingto understand

RandomDan

If you are pet lovers then ask what the rules on keeping pets are.

eddddy

Taking a step back... you're essentially buying a flat in a shared building. So...

• There will be a set of 'rules' which all flat leaseholder  have to follow - for harmonious living. For example, the rules might say you can't keep pets, you can't rent out the flat, you can't make alterations to the flat etc - or they might say you need permission to those things. These 'rules' are called 'covenants' and will be documented in the lease.

• You will be responsible for arranging and paying for repairs and maintenance to your own flat.

• The cost of repairs and maintenance to the main structure of the building will be shared between all the flat leaseholders. e.g. if there are 4 flats, you might have to pay 25% each. (So for example, if a building with 4 flats needs a new roof costing £40k,  each leaseholder might have to pay £10k)

• You mention £900 for service charge and ground rent. The 'service charge' means the leaseholders share of the maintenance, repairs, insurance and administration costs for this year.

• If the ground rent is say £100, then they're probably saying that your share of the maintenance, repairs and insurance for the current year is estimated at £800. It may turn out to be more or less than the estimate. Next year's service charge might be higher or lower - it depends how much maintenance and repairs etc are needed next year.

mrschaucer

Does it have cladding?

Neil49

mrschaucer said:

Does it have cladding?

You beat me to it. 

At the moment any cladding at all is a major issue as there is a massive backlog with regards to getting a certificate of approval for fire safety. As for the cost of removal and repair, the cost to you could be significant. 

princeofpounds

Visit here https://www.lease-advice.org/ to learn all about leases.

No length of lease should be particularly scary unless it's ~83 years or less (to give yourself a bit of a time buffer before hitting 80 years). After being there for two years you have a statutory right to lease extension. Just factor the costs of that into the pricing you are looking at.

For example, a lease extension calculator suggests that a 200k flat with £100 ground rent with 110 years on the lease will cost about £3000 to extend by another 90 years, plus solicitor fees of course. This is ~2% of the value of the property; not a big deal as long as you take it into account.

With ground rent, understand how much it is and how much it escalates. Anything over £250 (or £1000 in London) can be a problem for mortgage lenders (google 'the AST trap'). Escalations come in various forms but can be a problem if too fast - anything quicker than RPI or doubling every 25 years can also be an issue for lenders. Your solicitor and mortgage broker should be able to talk you it.

With service charges, understand that they can vary a lot over time. Read the lease to understand what they can charge you for. Try to understand if there may be a requirement for major works or ongoing repair issues. Don't believe anything the agent tells you, they will always lowball. Do not lump ground rent and service charge together, they are different things! 

Google the freeholder and managing agent if one is employed. Speak to other residents about how well or badly the block is run. Ask if there is a resident's association, speak to them.

As a wise poster says above, make sure you understand all the conditions in the lease.

Check to see how difficult/easy it might be for the building to exercise collective enfranchisement or right-to-manage in the event that the freeholder/managing agent becomes difficult to work with. High proportions of social housing or commercial space can be problematic for this. It's also harder to organise with very large blocks and absentee owners.

AlexMac

As others say, check what the Service charge covers, assuming as a minimum that it may only include insurance of the building (contents are down to you), the managing agents' fees, minimal maintenance, communal energy and upkeep of grounds/roads/common areas  if any.

At £900  I assume there is no surplus towards a "sinking fund" for future major one-off or cyclical maintenance?   I have a couple of small lettable flats where the local authority is the freeholder, and they are very efficient and reasonable, with a basic £900 pa Service charges but every 5-8 years I face a bill of up to £5k for my share of major works (roof, balconies, external decoration...) .  

I'd avoid a high rise block, preferring low blocks of traditional construction (brick with pitched tiled -not flat roofs), and I'm pleased that there are no lifts in my blocks; so no very expensive high scaffolding nor costly technical lift repairs.

I'd also be interested in who the freeholder is and how responsive and accountable they or their managing agent is, but this may be harder to establish short of asking prospective neighbours. You'll only get definitive replies on who manages via your solicitor, but I once walked away from a purchase on learning that the agent was unhelpful and unco-operative. (I rang 'em prior to offer and was told to p155 off and that they'd only respond to solicitors' formal enquiries, and that for a fat fee).  So I googled 'em to find that they'd defended an unsuccessful "right to manage" action by residents who were hacked off at their performance and at costs of a district heating system; which is probaby unusual.

amandacat

Having lived in a flat with electric only, I can share my day to day experiences. 
Noise- flat below in particular when they had music on. 
Is it a shared entrance? Can start to look untidy. 
If the heating is night storage heating, it is awful, no real control with it during the day. If it’s other electrical heating, it will be expensive. 
Garden- can you live without one or with a shared one? I hated not having a private garden to sit outside with a drink or to enjoy a sunny day. 

LeafGreen

Thankyou everyone, great responses - MSE Forum comes up trumps as usual.
It is 3 storey brick construction / pitched roof so no cladding to worry about.  The heating is wall mounted units, but not storage heaters.  Appreciate this may be more expensive to run but with the benefit of not having a boiler to break.  I’m not sure how the hot water works yet - presumably some kind of immersion heater, is that how yours works amandacat?

I think the lack of private garden will suit my brother (will be just him living there) as it’s less for him to worry about looking after!