Bad survey report on leasehold property

neets85

I purchased my very first property earlier this year, a ground floor flat with a long leasehold of over 100 years. I am a complete newbie to property buying and I've already hit a hurdle that I'm not sure how to circumnavigate. When I first viewed the property, I was very impressed with its condition, however I opted to have a surveyor take a look at it for a more thorough check and peace of mind. I wasn't expecting anything too serious to crop up, however I was surprised to receive a phone call from the surveyor informing me that although the internal property itself is in immaculate condition, the external property (responsible for by the leaseholder) is in very bad condition and has been neglected for a number of years, leading to extensive works needing to be done to rectify the problems, in particular the roofing and timber. The surveyor advised me to refer this information onto my solicitor to enquire if there is a sinking fund in place with a pot of money to cover all of the repairs that need doing and if the lease holder has already scheduled a plan for the work that needs to be done. I do recall the estate agent telling me that there was a sinking fund put aside for repairs, although it's not clear yet why this hasn't been utilised to fix the ongoing problems. Once I get the full report from the surveyor, I plan on passing this onto my solicitor to investigate, but I guess my question is how do I proceed from here? Should this stop me from going through with the purchase? I don't particularly want to pull out, but I get the sense from the surveyor that this is a BIG problem and could be costly to me later down the line. Any advice would be much appreciated. 

SusieT

In the first line you said that you purchased the flat earlier this year, at the end you say should you go through with it. 
Have you purchased it, or have you had an offer accepted, or have you exchanged contracts? My guess is that you have had an offer accepted, in which case depending on the answer to the sinking fund question, I would either run away, or continue with the purchase

neets85

SusieT said:

In the first line you said that you purchased the flat earlier this year, at the end you say should you go through with it. 
Have you purchased it, or have you had an offer accepted, or have you exchanged contracts? My guess is that you have had an offer accepted, in which case depending on the answer to the sinking fund question, I would either run away, or continue with the purchase

Sorry for the confusion. To clarify, I have had an offer accepted, but I have not exchanged contracts. 

So assuming there is a sinking fund in place, would you suggest I go through with the purchase? 

m0bov

Sounds like management agents have neglected the building. What does the lease say? This is a big red flag.

eddddy

Just to clarify... you need to read the lease to check who's responsible for building repairs and maintenance, but it often works like this:

• The freeholder is responsible for building repairs and maintenance

• The freeholder recovers the costs from the leaseholders via the service charge - or uses money in the sinking fund, if there is one

• The lease will say what percentage of the costs you are responsible for. (e.g. if there are 5 flats in the building, you might be responsible for 20% of the cost)

So if you think £20k worth of building works are needed, you might have to pay £4k (assuming 5 flats)
Or if there's already £15k in the sinking fund, you might only have to pay £1k

• If you want, you could reduce your offer by £4k to cover the costs, if there's no sinking fund (or by £2k to split the difference, or whatever)

• But the seller might say the flat was priced to take into account the condition of the building - so refuse to budge.

Something else to consider - it seems like the freeholder isn't doing a good job, and letting the building fall into disrepair. Maybe it's not ideal to have a freeholder like that, but perhaps a lot of freeholders aren't perfect.

neets85

Thank you for this advice. From what I can tell the lease states that the landlord is responsible for the maintenance and repairs of the structure and exterior of the building, as well as the communal areas, of which the costs are recovered via the service charge. The service charge liability is 9% of the charges and expenses. I can’t tell if there is anything about a sinking fund in the lease. I guess this is something I will need to clarify through my solicitor.

eddddy

neets85 said:

I can’t tell if there is anything about a sinking fund in the lease. I guess this is something I will need to clarify through my solicitor.

The lease should say if the freeholder is allowed to create a sinking fund.  If the lease doesn't allow it, there probably isn't one.

I would ask the seller about a sinking fund via the estate agent in the first instance. You're likely to get an answer much more quickly, and maybe before you've spent too much on legal fees, surveys etc. (But it's possible that some 'dopey' sellers might not know the details.)

But if you decide to proceed, you should definitely ask for confirmation of all the details via your solicitor. 

neets85

eddddy said:

neets85 said:

I can’t tell if there is anything about a sinking fund in the lease. I guess this is something I will need to clarify through my solicitor.

The lease should say if the freeholder is allowed to create a sinking fund.  If the lease doesn't allow it, there probably isn't one.

I would ask the seller about a sinking fund via the estate agent in the first instance. You're likely to get an answer much more quickly, and maybe before you've spent too much on legal fees, surveys etc. (But it's possible that some 'dopey' sellers might not know the details.)

But if you decide to proceed, you should definitely ask for confirmation of all the details via your solicitor. 

Thank you for this advice. I contacted the estate agents as suggested, however have yet to hear a response back from them. I will give them a little longer and hopefully will hear back from them soon. 

Having reread the lease I did find a section that refers to allocating a reasonable sum of money for provision of anticipated expenditure, although it doesn't explicitly state that this is a sinking fund. This is something probably that can only tobe confirmed by either the vendor or my legal advisor. 

SavingPennies_2

I wouldn't consider 100 years a long leasehold

newsgroupmonkey_

SavingPennies_2 said:

I wouldn't consider 100 years a long leasehold

This. It's generally prudent to expect to have at least 85 years left once the mortgage is paid off.

I'm guessing here that you're taking out a 25 year mortgage?

If you stayed for the length of the mortgage, you could be in some trouble selling.

For example.....

https://www.thetimes.co.uk/money-mentor/article/extend-lease-costs/

princeofpounds

SavingPennies_2 said:

I wouldn't consider 100 years a long leasehold

It absolutely is a long leasehold. 

Annoyingly the term has several different and independent uses, but it's normally possible to understand from the context how it is meant.

In law, a long leasehold is essentially an agreement to rent a property for a term of more than 21 years. Contracts below that terms are generally referred to as tenancies. If you have a long leasehold, your status in law is quite distinct to being a tenant on a shorter form of tenancy.

e.g. https://www.lease-advice.org/advice-guide/lease-extension-getting-started/

"A long lease is, mainly, a lease which had an original term of over 21 years when it was originally granted. How long is left on the lease is not relevant. It is how long the lease was for when it was first granted that matters."

The next common use of 'long lease' is in the context of mortgages. Most mortgage lenders will require a term of 80 years remaining before they will agree to lend (it can vary a little from lender to lender). Sometimes in this context, a term remaining under 80 years could be called a short lease. Therefore, you can get odd constructions like 'a short long lease'.

Then again, people may use it in the more general temporal sense of whether you may ever need to think about a lease extension - they might describe 999 years as long and 99 as short, for example. Although that's a fairly subjective viewpoint.

newsgroupmonkey_ said:

SavingPennies_2 said:

I wouldn't consider 100 years a long leasehold

This. It's generally prudent to expect to have at least 85 years left once the mortgage is paid off.

I'm guessing here that you're taking out a 25 year mortgage?

If you stayed for the length of the mortgage, you could be in some trouble selling.

For example.....

https://www.thetimes.co.uk/money-mentor/article/extend-lease-costs/

There's nothing particularly important about having 85 years left at the end of your mortgage. All that means is that you don't have to think about a lease extension in the term of your mortgage, but that's a totally arbitrary target. For example, with a lease of 110 years you can have a mortgage term of 25 years and 85 remaining at the end. But if 10 years pass and you decide to remortgage with a new 25 year term, the property will suddenly fail this criteria despite the fact that nothing fundamental will have changed - you will still be able to remortgage, you will still only have to think about a lease extension at the same time etc. 

It is rarely particularly troublesome to sell with a lease that has become shorter than 80 years - it just comes with an associated cost for a lease extension, and that cost steps up after 80 years remaining so it's wiser to do it before that. You have a right to a statutory lease extension of 90 years after owning the property for 2 years (or you can agree directly with the freeholder if they are co-operative) and a buyer can just incorporate the cost of that into their offer and either have the extension on completion or take over the statutory extension process. But you should be looking at doing that extension before the 80 year point whether you were selling or not, unless you were very short of cash and happy to let the lease run down.