However, leasehold ownership can be complex and involve additional costs and restrictions. A leaseholder owns the property for a fixed period under a lease, while the freeholder generally owns the building and land. The lease sets out the parties’ rights and obligations. It is therefore important that you understand its provisions before you become contractually bound when contracts are exchanged.
What service charges will be payable?
Service charges are an additional cost of owning a leasehold property and should be factored into a buyer’s budget. They are usually paid towards the upkeep, repair and insurance of the building and may also cover communal areas and managing agents’ fees.
The amount payable is not always fixed and may change yearly. Buyers should therefore check what the current service charge is and whether any further costs are likely.
Could there be major works?
These can result in additional demands after completion and may include roof or window replacement, external decoration, lift repairs etc. A landlord will usually need to consult leaseholders under the Section 20 procedure where qualifying works will cost a leaseholder more than £250, or where a long-term agreement will cost a leaseholder more than £100 per year. Buyers should still review notices, minutes, budgets and managing agent correspondence, as planned works may not yet have resulted in a final demand.
How long is left on the lease?
The remaining term can affect the property’s value, mortgageability and future saleability. A lease is a diminishing asset and the cost of extending it may increase as its term reduces. Under the law, the cost of extending the lease may increase once the term falls below 80 years because the leaseholder may have to pay the freeholder an additional sum - marriage value - which can make the lease extension more expensive.
Although leasehold reforms have been announced, not all provisions are in force. Buyers should not assume future changes will remove the need to investigate the term now.
Is ground rent payable?
Most new qualifying long residential leases granted from 30 June 2022 are restricted to a ground rent of nil or a nominal amount, although this will not usually apply to the resale of an older lease. Older leases may still contain ground rent provisions, including increases. Buyers should check the rent, any review provisions, whether the lease is a qualifying lease for building-safety purposes, and whether any landlord or leaseholder certificates are required.
Are there restrictions or additional fees?
It is important that the lease is reviewed and buyers discuss how they intend to use the property before exchange. This helps identify whether the lease contains any restrictions – such as pets, subletting or business use - which could create an issue.
What about building safety?
Where a flat is in a building affected by building safety rules, additional enquiries may be required regarding cladding, fire safety, and the cost of any remedial works. The Building Safety Act 2022 provides certain protections for some leaseholders in England against historic building safety costs, although these typically only apply to qualifying leases. Generally, a qualifying lease under the Act is one that was granted for a term of more than 21 years and was the leaseholder's only or principal home on 14 February 2022, subject to certain conditions. The extent of any protection will depend on the building, the lease and whether the legal requirements are satisfied. Buyers should ensure that the necessary certificates and supporting information are available.
Early legal advice can assist buyers in understanding the lease, identifying likely costs and considering any effect on their mortgage or future sale. This information should be established prior to exchange.
If you wish to discuss this further, please do not hesitate to contact Joshua Hayes on email: jjh@cooperburnett.com or our Residential Property team: 01892 515022.
This blog is not intended as legal advice that can be relied upon
Originally published in Crowborough News: https://crowborough.news/
