Buying a leasehold property

A Leasehold means that you own the property, but the land upon which the property is built is owned by the freeholder.  This gives you the right to occupy the property for as long as the lease is valid, which can vary from 99 years, 125 years or many more years for a flat, and 999 years for a house.  

During this long tenancy, the property can be bought and sold, with the remaining length of the lease confirmed when you buy the property.  When this comes to an end, the property is returned to the landlord.  If the lease is due to expire during your ownership of the property, you can apply to extend the lease.  You can do this by applying directly to the landlord or you can collectively apply with the other flat owners to purchase the freehold.  Alternatively, you can apply to buy the freehold yourself.

Buying a leasehold property may mean you are obligated to pay fees to the person or organisation who manages the building.  This could be your landlord, a management company or instructed management agent (referred to here as the “lease administrator”).  We set out below a summary of the fees you may be expected to pay.  This is not an exhaustive list and we can discuss this further with you.

Three Types of Leasehold Charges

There are three types of leasehold charges that you could be responsible for when you own a leasehold property, and it is important that when buying the property you ensure all payments for these will be up to date when you complete on your purchase. 

Ground Rent

Your lease should state how much ground rent you will be expected to pay, however you should also search for a clause which could allow the landlord to increase the rent in future years.  We can advise as to any rent review clauses that may be included and assist with the calculations as these can occasionally be complex. 

Service Charges

Service charges are your contribution to the upkeep of any communal parts of the property or grounds, such as hallways or the garden, which can vary depending on the amount your lease administrator spends in that year.  This charge can also include building insurance, but not in all cases so it’s best to clarify this. 

Your lease should inform you of whether you are required to pay a fixed percentage of any work completed or whether it simply asks you to pay a “reasonable proportion”, which could cause confusion at a later date.  We will be able to help explain what items may be included within the service charge and we can enquire as to the future plans of the lease administrator, leaving you with as much information as possible to make your decision for your future home. 

Administration Charges

These charges can vary and are open to many different areas, but mainly are payable to the lease administrator on an ad hoc basis when you request a certain service from them relating to your buying, selling or use of the property. 

It is a contractual obligation for you to pay the ground rent and service charge on the date specified in the lease, and if this isn’t done then your landlord can bring forfeiture proceedings through a court order.   If your landlord can satisfy a tribunal that the charges that have not been paid are properly due and reasonable, then the forfeiture proceedings could result in your landlord repossessing the flat.  The landlord may also seek a county court judgment (CCJ) for payment which can impact your credit in the future. 

We can review your lease and help you understand these payments, when they are due and are in a unique position to refer you to our colleagues in our Litigation and Dispute Resolution team should you find yourself in need of their advice.

As well as the ad hoc administration charges mentioned previously, there are other situations that will require an administration fee be paid to the leasehold administrator:

• Deed of Covenant - this will confirm that you will be bound by, and accept, the terms of the lease.
• Notice of Assignment and Charge - this is regarding the change in ownership and mortgage lender for the leasehold administrator.  This will ensure they have the correct contact details to keep you informed on future plans and applicable charges. 
• Certificate of Compliance - the lease administrator will confirm with the Land Registry that the requirements for changing leasehold ownership have been complied with.
• Stock or Membership Transfer - you could be required to become a member of the Management Company, and if so your leasehold administrator may charge a fee for transferring the share or membership into your name.

As well as service charges, some leases may require you to provide your landlord with money in advance to create a reserve fund.  This is to ensure that sufficient money is available for future scheduled major works.  As with all other financial obligations, your lease will set out the details of the reserve fund and when any maintenance works are due.  If major works are required but there is insufficient money in the reserve fund, the costs will be shared between you and the other leasehold owners in the proportions set out in your individual leases.

When your flat is sold, your contributions to the reserve fund are not returned to you so it is important you understand this clause in your lease before making any payments.

When you own a leasehold property, there will be certain regulations that prescribe what you can and cannot do.  If you wish to do something you are not currently permitted to do, for example own a pet or run a business from the property, there may be a fee associated with making the request and the subsequent change. 

When it comes to you selling the property, there are a number of enquiries you will have to make to provide your buyer with the right information regarding the title of the property. 

You may also need to obtain a licence from the lease administrator in order to sell the property.  They may wish to ‘vet’ the new potential owner to make sure they are happy, for which you will be charged a fee.  You may also be charged an ‘exit’ or ‘transfer’, which is usually a percentage of the value.

If you are looking to sell your leasehold property, we can advise you as to the necessary steps you need to take and what charges you could face.  The same as when you initially bought the property, the next owner will want to ensure that everything is in place so they understand their responsibilities.  If these are not in place, it could delay the sale.