Purchasing a Leasehold Property
In general, most residential properties, flats, houses, and maisonettes are leasehold. Not many people are aware of all the ins and outs of purchasing a leasehold property. Buying and owning a leasehold property involves extra paperwork and fees.
What is a leasehold property?
A leasehold property is owned by the purchaser for a fixed term, as outlined in the lease. The buyer has the right to live in the property but does not technically own the property or the land it sits on and must pay ground rent to the freeholder (landlord).
A lease is a legal contract that gives the leaseholder exclusive possession of the property and the right to use it in accordance with the terms set out in the lease.
Purchasing a leasehold property
When purchasing the leasehold property for the first time, request the following key information from the real estate agent or freeholder
- The number of years remaining on the leasehold term
- The amount of annual ground rent, if it increases over time, and the frequency and method of increase
- The current service charges
- Whether the leaseholder is expected to pay for any major repair work
- Any leasehold restrictions about what you can or can not do on the property
- Requirements of consultation for gaining permission to alter or sublet the property
- If there is any fixed date for collecting ground rent payments
- The annual insurance amount
Once you have gathered all the details, contact the solicitor for getting advice on the terms and conditions of the lease.
Rights and responsibilities of the leaseholder
Responsibilities
- The leaseholder has to get permission from the freeholder to make alterations
- Responsibilities for maintaining the property
- Payment of ground rent and other charges related to the lease
Rights
- Get information about the insurance, service, and administration charges
- Know the freeholder or managing agent’s name and address
- Right to consultation for certain repairs and running costs
- Challenge specific charges under certain circumstances
Leasehold Charges
Typically, a leaseholder has to pay a range of charges annually. It includes
- Ground Rent – If required by the clauses of the lease, the leaseholder is required to pay a sum of money every year, at a fixed or escalating rate. The ground rent may increase at fixed intervals or based on indexes such as the Retail Price Index (RPI).
- Service Charges – The leasehold is also liable to pay service charges for the maintenance and upkeep of the property and communal areas. The legal contract has a clause that outlines what the charges cover and when they will be payable.
- Administration Charges – These charges are only payable by the leaseholder under certain circumstances. Usually, it is related to the application for a grant of approval, failure to make any lease payment due, and breach of an obligation mentioned in the lease.
Length of Lease
The typical leasehold term is between 99-125 years but can run as long as 999 years. The leaseholder must find out the number of years remaining on the lease, especially when buying an existing lease. A short lease with less than 80 years remaining could affect your ability to get a mortgage. Moreover, the leaseholder must have lived in the property for two years to extend the lease.
