- 1 What is leasehold property?
- 2 How long are property leases?
- 3 Applying for lease extensions
- 3 Checking the lease plan
- 4 Why are flats leasehold?
- 5 What are Tenant’s Covenants?
- 6 What are ground rents and how much do they cost?
- 7 Service Charges and Insurance
- 8 Management Companies
- 9 The Leasehold Advice Service
There are some important things you should know about buying a leasehold property in the UK which we have detailed below, including the processes involved and your statutory rights.
What is leasehold property?
There are two ways you can hold land, freehold and leasehold. Most houses are freehold, and most flats are leasehold.
The basic difference is that, if you buy a freehold then you own it indefinitely. However, if you have a leasehold, then the landlord gets the property back at the end of the lease.
If you own or purchase a leasehold property it means you do not own the land the property is built on. A leaseholder essentially rents the property from the owner for a set period of time, whether that’s years, decades, or even centuries.
How long are property leases?
Lease terms for residential property are usually at least 80 years, and there are statutory rights for most tenants to renew their leases, so this isn’t usually a problem. There is nothing wrong with owning leasehold property, as long as the lease has been drafted properly. Your conveyancer will check the terms of the lease as part of the conveyancing process.
Applying for lease extensions
If you have been living in a leasehold flat for two years, you can apply for a lease extension.
This will give you a new lease of up to 90 years, plus what is left on your old lease. The price of the lease extension will be assessed by a specialist valuer.
If there is less than 80 years left on your lease, the price payable for an extended lease will be higher, so it is best to extend it well before that date. If you are interested in buying a flat where the seller’s lease is short, then the seller can start the application process for you, and you can take over the process once you have bought it.
As the procedure can be complex, we recommend consulting your conveyancer for advice.
Checking the lease plan
If you’re purchasing a leasehold property your conveyancer will send you the lease plan.
It’s important to check that the lease plan is correct and matches the current boundaries, including the position of parking spaces, paths, balconies, and communal areas.
You must tell your conveyancer if something doesn’t seem quite right. You cannot rely on the Land Registry plan to be 100% accurate, or assume that someone has checked this before.
Why are flats leasehold?
The reason that flats are sold leasehold is so that repairing obligations can always be enforced between the current landlord and the current tenant. However, with freehold houses and flats, this is not the case.
Let’s assume that there are two freehold flats, Steve has just bought the freehold of his first-floor flat and the roof, and John has just bought the ground-floor freehold flat and the foundations. If John doesn’t repair the roof and guttering, damp and flooding could ruin John’s flat. However, because ‘positive’ freehold covenants are not enforceable against the other flat owner, John has no way of making Steve maintain the roof or gutters. Similarly, if a large crack formed in the ground floor flat, meaning that the first-floor flat became dangerous to live in, there would be nothing Steve could do to make John comply with his ‘covenants’ to maintain his flat.
This is a problem with land law that remains unresolved.
What are Tenant’s Covenants?
Landlords want to make sure all flat owners will keep their property well maintained, and that they will not use it in a way that may cause damage, nuisance or interference with other flat owners.
This means the lease will contain many pages of ‘Tenant’s Covenants’.
Leases are not standardised, and they can vary a great deal. It’s important to read the Tenant’s Covenants carefully and comply with them. Restrictions may affect your ability to make alterations to the property and affect how you can use your flat.
If a neighbouring flat owner breaches their covenants you can report them to the landlord.
What are ground rents and how much do they cost?
Most residential flat leases require the tenant to pay a small ground rent to the landlord.
Sometimes this is a nominal rent of a few pounds a year, or even what is known as a ‘peppercorn’ rent (meaning that no actual payment is needed). However, often the rent can be £150 or more a year, and can be subject to increase.
The landlord does this to create a valuable investment. If the ground rent increases periodically, you have to check that it does not eventually rise to unacceptable amounts.
For example if it starts at £200 and then doubles every 50 years, and the lease is a long one, say over 250 years, this could make the flat difficult to sell.
Some landlords may also charge additional fees each time a tenant wants to sell or make improvements to the property.
Service Charges and Insurance
Most landlords arrange insurance for the structure of the building, and most leases contain a service charge provision which allows the landlord to divide up the cost of insuring and maintaining the building between the tenants.
There are statutory controls over how a landlord must go about asking for service charges, and if they do not follow these requirements the service charge may be recoverable. For further information see the Lease Advice Service mentioned below.
Landlords can charge for providing information about service charges and insurance to any potential buyers.
If you will have shares in the Management Company for your flat or you’re a director, it’s important to make sure that the company records are appropriately filed each year.
If you don’t, the company may be struck off Companies Registry which may make it impossible for you to sell your flat until it has been reconstituted.
The Leasehold Advice Service
You can find lots of helpful advice on leasehold properties over on the Leasehold Advisory Service website.
The website features many advice guides, videos, podcasts and downloadable leaflets, that will give you more information. If you are thinking of extending your lease, there is an online calculator that will give you an indication of the price of a new lease, plus other helpful guides to the process.
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Leasehold conveyancing is more complicated than freehold conveyancing, and may cost more because of this.
Leasehold properties are most commonly flats which are owned by a landlord. These are essentially rented out to a tenant who is permitted to live on the property and use the land for a contracted period of time.