Have you ever read a lease? If you haven’t, you’re not alone. Every year thousands of people buy leasehold flats without having much idea of what they’re letting themselves in for.
In many parts of England and Wales, if you want to buy a flat, often the only option is to buy one that’s leasehold. If you own a leasehold flat you don’t own the building or the land it sits on, instead, you buy the right to live in it for a fixed period of time (the length of the lease). The length of the lease typically varies between 99 and 999 years.
The Law Commission recently proposed changes to the leasehold system, which should make it easier for leaseholders to buy the freehold or extend the leases of their homes. You can read more about their recommendations here.
As a leaseholder:
- You are responsible for and can make decisions about whatever is within the four walls of your flat, but the landlord (otherwise called the ‘freeholder’) is usually responsible for maintaining the fabric of the building (the external walls, communal areas, the roof etc).
- The freeholder can be an individual, a company or the block of flats can be owned collectively by the leaseholders who live there.
- The leaseholders normally have to pay the costs of any maintenance and repairs. It’s worth checking out your lease as this will tell you how often the building will be repainted etc. If something is in the lease, you’re contractually obliged to do it so don’t ignore what’s written there.
- You will have to insure the contents of your flat, but the freeholder will normally insure the building for you. Some insurance brokers pay the freeholders a commission which can inflate the level of the insurance premium.
- You will have to pay a ground rent. This is often only £100 a year or less, but you’re legally obliged to pay it and – if you don’t – you’ll be in breach of your lease.
Some landlords manage leasehold property directly themselves, others employ a firm of managing agents to do it for them. If the flat owners don’t think the managing agents are up to the job, they have the right to take over the management of their block of flats through Right to Manage. Find out how this scheme works here. If the flat owners own the freehold collectively, they can choose who manages it.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
What to look out for
If you’re thinking about buying a leasehold property, there are several things you need to consider first. These include:
- The length of the lease. Your starting point should be how long is left on the lease. Mortgage lenders don’t generally lend on properties that have less than 75 years left.
If you’re worried about the length of your lease, you may be able to extend it for another 90 years, but the cost will depend on several factors, such as the value of the property, the level of ground rent and the number of years it has left to run. The Leasehold Advisory Service has a calculator which can help give you a rough idea how much it might cost to extend the lease. Under government proposals leaseholders in England will be offered the opportunity to extend their lease by up to 990 years, with no ground rent payable.
- What’s in the lease? If you’re using a conveyancing solicitor, ask them whether they will check the lease or just get hold of a copy for you to check. Some solicitors, especially those offering budget-priced conveyancing, will get hold of the lease but won’t go through it in detail. Before you sign up with one, ask them whether they specialise in leasehold property and if they will check the lease for you (and if so, what they will be looking for).
- How much have the service charges risen by? Your conveyancer should request a statement or summary of the last three years’ annual service charge accounts. They should also ask whether there are any major works planned in years to come which leaseholders may be liable for. It may also be worth looking at the accounts – or getting a friendly accountant to do it. If the accounts aren’t in a healthy state, it could tell you a lot about the managing agents.
- Is there a sinking fund? A sinking fund is a fund that you pay into every year so that when major repairs are needed, you don’t have to find the money in one go. Ask how much is in the sinking fund, what it is supposed to pay for, whether there are any major repairs planned in the near future and, if so, whether there is enough money in the fund to pay for them.
- Who manages the property? You don’t have to have a company to manage the block of flats. There’s no regulation of managing agents, despite the fact that they collectively control millions of pounds of leaseholders’ money. Find out who the managing agents are, what they do for their money, how efficient they are (try Googling their name to see what others think, but bear in mind you’re more likely to hear about the problems). Find out if the firm is a member of The Association of Residential Managing Agents (ARMA), which is the trade body for managing agents. It promotes high standards of leasehold management so should give you peace of mind that the managing company in charge of the property adheres to a strict set of standards. If the block is managed by the other flat owners, find out if they use a company or do it all themselves.