A recent article in the Sunday Times states that 29% of properties bought in 2016 were leasehold. If you are thinking of buying a leasehold property, here’s some guidance on what you should know:
Who owns what
If you buy a property that is leasehold, then you will only own that property for a fixed period of time. You will have a legal agreement (a lease) with the landlord (also known as the freeholder) which outlines how long this period is. Ownership of this property will return to the freeholder when this lease expires. Most flats are freehold, and some houses, if bought through a shared ownership scheme, can be too. You have the legal rights to know your freeholder’s name, the details of service charges and insurance.
Before you make an offer
When you buy a leasehold property, you will be taking over the lease from the previous owner. So, you need to budget for ground rents, service charges and other potential costs. This is because shared services are maintained by the freeholder, or in some cases a resident’s management company, and the costs including your share are collected from the leaseholders. The length of the lease may also affect your mortgage options. Most lenders require the lease to run for 25/30 years beyond the end of your mortgage. So, if the lease is less than 70 years you may struggle to find a lender.
Extending a lease
You can ask for your lease to be extended at any time. Generally, the shorter the lease, the more expensive it is to extend. If you are looking to buy a property with a short lease, you can ask the seller to extend the lease before you buy. Under statutory procedure, the person making the application to extend the lease must have owned the property for two years and is entitled to an extended term of 90 years with no ground rent. There are different legal steps and rules depending on whether your home is a flat or a house. If you own a flat you’ll be looking to buy a share of the freehold and if it’s a house, you may have the right to buy the freehold.
A landlord who wants to sell the freehold of a building containing flats must offer this to you first. It is called the right of first refusal.