If you’re thinking of buying a leasehold flat, make sure you know what you’re letting yourself in for. Read my guide to what you need to know about owning a leasehold flat.
Buying a leasehold flat; the basics
In many parts of England and Wales, if you want to buy a flat, the only option is to buy one that’s leasehold. If you own a leasehold flat you don’t own the building or the land it sits on, instead, you buy the right to live in it for a fixed period of time (the length of the lease).
SAVVY TIP: The lease is the legal contract you sign up to when you buy but many people don’t see a copy of theirs until after they’ve bought the property. Make sure you see the lease of a flat you’re buying before you exchange contracts.
The basics of being a leaseholder:
1. The length of the lease is typically between 99 and 999 years.
2. You are responsible for whatever is within the four walls of your flat, but the landlord (otherwise called the ‘freeholder’) is usually responsible for maintaining the fabric of the building (the external walls, communal areas, the roof etc).
SAVVY TIP: Just because the landlord or freeholder is responsible for maintaining the fabric of the building doesn’t mean they will pay for it. It’s normally charged back to you and the other leaseholders.
3. The freeholder can be an individual or a company. The block of flats can also be owned collectively by the leaseholders who live there (the process of buying the freehold from the landlord is called collective enfranchisement, which you can read about on the Leasehold Advisory Service website.
SAVVY TIP: The leaseholders normally have to pay the costs of any maintenance and repairs. The lease will tell you how often the building should be repainted etc.
4. The landlord/freeholder is also responsible for managing communal areas. He or she is also responsible for making sure that communal gardens and lifts are maintained.
SAVVY TIP: Some landlords manage leasehold property directly themselves, others employ a firm of managing agents to do it for them. If the flat owners don’t think the managing agents are up to the job, they have the right to take over the management of their block of flats through what’s called ‘right to manage’.
5. You will have to insure the contents of your flat, but the freeholder will normally insure the building for you.
SAVVY TIP: Some insurance brokers pay the freeholders a commission which can inflate the level of the insurance premium. You can challenge the level of the insurance you’re paying if you think it’s too high. The landlord doesn’t have to find the cheapest insurance, but it must be within the market ‘norms’.
6. You will have to pay a ground rent. This may be around £100 a year or less, but you’re legally obliged to pay it.
What to look for when buying a leasehold flat
If you’re thinking of buying a leasehold flat, there are several things to look for:
1. Length of the lease. Mortgage lenders don’t generally lend on properties that have less than 75 years left when the mortgage ends.
SAVVY TIP: You can extend the lease for another 90 years after your current lease ends through something called ‘lease extension’, but the cost will depend on several factors. This includes the value of the property, the level of ground rent and the number of years left to run on the lease. The Leasehold Advisory Service has a leasehold extension calculator on the site to help you work out how much it might cost.
2. What’s in the lease. If you’re using a conveyancing solicitor, ask them whether they will check the lease or will only get hold of a copy for you to read.
SAVVY TIP: Some solicitors, especially those offering budget priced conveyancing, will get hold of the lease but won’t go through it in detail. Before you sign up with them, ask them whether they specialise in leasehold property and if they will check the lease for you (and if so, what they will be looking for).
3. How much have the service charges risen by? Ask for a statement or summary of the last three years’ annual service charge accounts.
SAVVY TIP: Bruce Maunder Taylor, a surveyor who specialises in leasehold property (I know because I called on his expertise when I owned a leasehold flat) recommends looking at the accounts — or getting a friendly accountant to do it. If the accounts aren’t in a healthy state, it could tell you a lot about the managing agents.
4. Is there a sinking fund? A sinking fund is a fund that you pay into every year so that when major repairs are needed, you don’t have to find the money in one go.
SAVVY TIP: Ask how much is in the sinking fund, what it is supposed to pay for, whether there are any major repairs planned in the near future and, if so, whether there is enough money in the fund to pay for them.
5. Who manages the property? There’s no regulation of managing agents, despite the fact that they collectively control millions of pounds of leaseholders’ money. Find out who the managing agents are, what they do for their money, how efficient they are (try Googling their name to see what others think, but bear in mind you’re more likely to hear about the problems).
SAVVY TIP: Find out if the firm is a member of ARMA, which is the trade body. It doesn’t guarantee they’ll do a good job, but it does have a code of conduct with some teeth and independent arbitration. If the block is managed by the other flat owners, find out if they use a company or do it all themselves.
Leasehold Life: Free information site for anyone living in a leasehold property.
News on the block: Useful information for leaseholders, with directories and downloads.
Leasehold Advisory Service: government funded, independent advice service with a wealth of information online. You can also ring the helpline for advice on 020 7832 2500.
SavvyWoman email newsletters: If you found this information useful why not sign up now to receive free fortnightly email newsletters with money saving tips and help? You can sign up at the top of any page on the website and your details won’t be passed to any other company for marketing purposes.