The number of people buying leasehold properties has risen dramatically over recent years, yet some lack knowledge about how leaseholds actually work. There are many points to consider when buying a leasehold property so here are a few things worth considering and things to be aware of before jumping in headfirst.
What is a leasehold property?
A leasehold property is a rental property. Although buying a leasehold property would appear that you are the outright owner, you are in fact a tenant. What you actually buy is a lease to live in that property for a set number of years. If you fail to renew your lease before it expires then your property will revert back to the freeholder and you will have lost the entire thing. Always check how many years remain on the lease before you commit to buying.
Check lease terms
The lease term is very important. A lease with 90+ years is safe however you should make enquiries as to how much it will cost to renew, as the longer you leave it, the more it will cost. If the lease is lower than 80 years it will cost you more to renew it as marriage value is then calculated into the renewal price.
Once a lease drops below 70 years you will find it more difficult to find a lender if you require a mortgage. The cost to renew it will have increased substantially too. As an example, here is a guideline of lease renewal costs for a £250,000 property with an annual ground rent of £100:
- 90 years remaining – £3,000 to £5,000
- 80 years remaining – £5,000 to £7,000
- 75 years remaining – £9,000 to £11,000
- 70 years remaining – £13,000 to £15,000
- 65 years remaining – £18,000 to £20,000
- 60 years remaining – £23,000 to £26,000
What if you want to extend your lease?
You should also be aware that if you wish to make any structural changes to the property you will need to seek permission from the freeholder, and this is something you will have to pay for. For example, if you wish to install a loft conversion you will be required to provide your freeholder with the proposed plans for approval. If they decide to grant you permission it will be subject to you paying a charge which depends on the value of the property and the resulting uplift in value which, could be anything from £5,000 to £30,000 for a property between £200,000 and £500,000. You will be liable to pay the legal costs and any administration charges also.
Your responsibilities as a leaseholder
Who is responsible for the insurance and maintenance of the communal areas? This will be detailed in your lease and it is a point to be clearly understood. There could be service charges for planned works such as window or roof replacements in the next year or two. Costs for such works are applied to the tenants of the properties and these can be extremely costly. Always make enquiries to ascertain the extent of any likely costs.
In summary, make sure you do your own research and make additional enquiries to those raised by your solicitor. Things to keep a close eye on are the lease terms and duration, ground rent and service charges, responsibilities for maintenance and the history of disputes.