We have seen much commentary recently about Leasehold property, particularly with regards to new – build homes. But what if you are buying a leasehold property, what key factors must you consider?

Firstly, what does Leasehold even mean? Leasehold means that whilst you own the property, the land upon which the property is built is owned by the landlord (sometimes referred to as the freeholder). You therefore have the right to occupy the property for the length of time that the lease is valid.

The lease itself is a contract between the leaseholder and the landlord. The lease will set out any rights that the parties have and obligations and responsibilities of the leaseholder and the landlord.

Commonly, the landlord is responsible under the terms of the lease for making sure that the common areas of the property are maintained and that the building itself is insured against the usual risks. You can normally expect the landlord to be responsible for the structure of the building. You will find that the lease will also set out your obligations as a tenant, for example to re-decorate the interior of the property every so many years, to pay the rent and service charge and any other rates in connection with the property.

The Remaining Term

The important question is how much of the ‘term’ is remaining when you take ownership. Traditionally, leases are for a term of 99 or 125 years and the property can be bought or sold during the term. Year on year, the term will decrease and it is advisable to make enquiries as to how long is left of the fixed term sooner rather than later.

It is possible to extend the lease if you meet certain qualifying criteria, however, you must have owned the property for two years before you can begin the process, which can be costly.

The remaining term on the lease is equally as important as the location of the property since it can impact upon the value, marketability and whether a mortgage company will agree to lend on the property.

Service Charge

The service charge is payable by the leaseholder to the landlord in respect of the services that the landlord provides and would normally cover such things as maintenance and repairs to the external structure, the common parts, lifts and buildings insurance.

The charges may also include the costs of management by the landlord or by a managing agent appointed by the landlord.

Through the service charge, you may also be required to pay into a ‘reserve’ or ‘sinking’ fund on an annual basis to cover any major works such as replacing the roof.

The service charge can vary and you need to bear in mind that this can increase or decrease each year. If you are viewing a leasehold property, pay special attention to the common areas, the windows, the roof and the building. Do they seem to be in a good state of repair or could there be a rise in the service charge in the near future due to some major works. Another question that you should ask is whether there are any major works in the pipeline since this can be a good indication as to whether there might be a rise in the service charge.

A healthy reserve fund or sinking fund may provide some peace of mind for a prospective buyer if major works are a possibility in the future since the landlord may look to this to fund such works rather than through a rise in the service charge.

Ground Rent

As we have already looked at, the landlord owns the land or ‘ground’ upon which the property is built. Therefore, there is usually a ground rent payable. Ground rent is usually a token payment on an annual or six monthly basis. However, beware of ‘time bomb’ ground rent where provisions in the lease can result in significant increases every five to ten years, for example.

The Lease

You should try and obtain a copy of the lease as soon as possible once you have found a property that you might be interested in. The lease can be a lengthy document and is not always written in plain English. Make sure you understand what is expected of you as a leaseholder and what you can expect from the landlord. The lease will set out the start date, the duration / term of the lease, who is the landlord and the ground rent payable.

The lease may also contain certain restrictions, such as not subletting or renting the property out.

Older leases can have some fairly obscure clauses. Always make sure that the terms of the lease are not going to cause problems for anybody wanting to secure a mortgage over the property.

As long as there is a well written lease, and the building is well managed, there is no reason that the property cannot be your happy home and a good investment.

Our Residential Property Team here at Lupton Fawcett is happy to advise you on all aspects of your sale and purchase. Please contact Senior Solicitor, Gemma Lawn or a member of the Residential Property Team.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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