The financial implications of buying leasehold property
Buying property is an expensive business but purchasing a leasehold property can come with a whole heap of unforeseen charges. Rob Denman, Solicitor and Head of GW LET, discusses:
“When you purchase a leasehold property you are in fact buying the right to live there for a set number of years rather than owning the property itself and the land on which it stands. In other words a leasehold property is a long term rental, typically lasting 99 or 125 years.
“When buying leasehold property you will receive a lease along with all your other paperwork. This will stipulate your requirements which typically include keeping the property in good repair, not carrying out major alterations without consent and the prohibition of sub letting.
“In addition to the lease, your conveyancer will also need to locate all paperwork surrounding your financial liabilities for the property and explain them to you. While the freeholder is required to maintain the upkeep of the building such as repainting its exterior, fixing the roof and cleaning the gutters, leaseholders are liable for some, if not all, of the costs. There have been many examples where such work has reached a five figure total so clearly this can have a significant impact on a leaseholder’s finances.
“A freeholder must consult all leaseholders of any work is undertaken and obtain a minimum of two estimates however. Leaseholders then have 30 days in which to respond.
“Leaseholders do not have to remain under the reign of the freeholder however; at any point they have the right to buy the freehold. This is known as enfranchisement.
“If you own a leasehold house, you can individually buy the freehold. However if the leasehold property is a flat, you will need to purchase the freehold collectively with the other flat owners. It is important to bear in mind that by buying the freehold all flat owners become liable for insurances, repairs and all other costs previously covered by the landlord.
“It is difficult to find lenders willing to grant a residential mortgage on a leasehold property with less than 80 years on the term. As a result the property will start to significantly diminish in value, trapping the owner. It could even cause them to fall into negative equity.“If you are not in a position to buy the freehold, you can extend the lease on a flat on an individual basis. This will add 90 years to the existing lease.
“Enfranchisement is a highly complex area of law, one which requires the assistance of a qualified specialist such as Goldsmith Williams. Anyone looking for an enfranchisement professional should check to see if they are a member of the Association of Leasehold Enfranchisement Practitioners (ALEP).”
Content correct at time of publication