Important things to note when purchasing a leasehold property
With the increase in demand for more and more leasehold properties, especially in London, it is worth noting what to check before you commit to purchasing leasehold property. There are two types of properties in the UK: freehold properties and leasehold properties. For freehold properties, you will own the land and the building that sits on the property. Leasehold property means you will own the property and not the land it sits on for a given number of years, usually 99,125,999 years. A lease is a written agreement that sets out the terms on which you get the right to use the property for a specified period, and grants you the legal rights to occupy the property subject to certain terms and conditions. Below are some important things in a lease worth checking:
- Term of the lease: It is very important to note how long the lease is granted. If the remaining term of the lease is less than 90 years, you should check the process of extending the lease and how much it will cost. Lenders typically do not lend on short leases, and it will be very costly to extend a lease.
- Who are the managing agents (managing agents are the companies appointed by the landlord to run and manage the building and services)? As I mentioned above, it is equally good to check who are the managing agents are and their reputation. I have seen a lot of disputes between managing agents and leaseholders occur due to poor services and higher charges.
- Ground rent: ground rent is paid under the terms of the lease to the landlord. It is important to check the rent review periods and how much the rent will increase.
- Any major works planned? It is worth checking with the seller and the managing agents to see if any major works are planned shortly. Major works can increase service charges.
- • In the event you would like to purchase the lease or extend the lease, it is worth checking or obtaining advice on the possibility and process of extending the lease or purchasing the freehold.
- Who is the freeholder, and what is the freeholder like? If you are purchasing an apartment in a block of flats, this is worth checking. Usually, the freeholder would be a company or a group of companies in a large block of flats.
- Service charges: a payment to be made by you in advance for your share of the maintenance and insuring the building cost. The amount of service charges can vary from year to year depending on the cost of services. A separate amount of service charges will be collected as a sinking fund towards major works (infrequent works), for example, major roof works, replacing boiler double glazing, etc. This would enable the costs of major works to be spread between years.
- Restrictive covenants associated with the lease. These are the things you agree not to do when you sign a lease. These restrictive covenants usually cover aspects like restrictions on access to land, restrictions on changing the internal structure of the flat, the type of flooring, playing loud music, and keeping pets.
- The dispute resolution mechanism: If a dispute occurs between the neighbours, the leaseholder, and the landlord, what is the mechanism set out in the lease to resolve the dispute
Chathuri Kumar
Solicitor
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