What to watch out for when buying a leasehold property
Are you in the market for a new home and you’re contemplating buying a leasehold property? It is a fair assumption that you might be anxious about the implications? Getting a leasehold property is by no means a bad move, in fact you might find it more affordable in comparison to freehold. Needless to say there are some facts you need to understand otherwise hidden surprises will catch you unaware. Here’s a guide to help you appreciate the potential pitfalls and what to watch out for when buying a leasehold property.
What does leasehold mean?
Leasehold and freehold are the two forms of legal property ownership. Leasehold alludes to a property ownership type under which one only has the right to occupy the property for a fixed period of time, and does not own the building outright. The entire arrangement is prescribed in a lease with the landlord or freeholder.
Properties usually under leasehold
In most instances leasehold applies to flats which form part of a larger block. However, in some cases, houses can be leasehold too.
Here’s a few things to think about if you are contemplating purchasing a leasehold flat or house.
Under leasehold you do not legally own either the building nor the grounds in which it is located. Essentially you get exclusive possession of a property for a fixed period.
2. Short leases
Be wary of short leases. Always check and consider the length of the lease remaining with the estate agent or seller. As a general rule any lease of less than 70 years can start to adversely affect the value of the property
3. Lease extensions
Agreeing to a lease extension is not a decision to take lightly. The cost of extending a leasehold can be substantially high and is highly dependent on several variables, including the property’s value, the lease length and ground rent.
4. Be cautious of the property price
A seemingly cheaper property in comparison to similar properties is cause for concern. In some situations the property may need a lease extension. If you do decide to proceed, make sure you factor this into your offer price.
5. Length of lease
Factor the length of the lease into your decision making. Regardless of the length of the lease when you buy a leasehold property, you need to remember that you may have to buy an extension in the future.
6. Terms on your lease
The terms on the lease as with any other legal documents are of paramount importance and should be appreciated by all parties concerned. Ensure each and every item is explicitly detailed and fully understood.
7. Ground rent
Ground rent refers to regular payments made by a holder of a leasehold property to the freeholder. Fully understand the value of ground rent as this can accumulate to a sizeable amount.
8. Maintenance fees
Be wary of excess maintenance fees. Included in the lease agreement should be the party responsible for maintaining the common parts of the building. If any issues fall on the leaseholder then be adamant to ask for historical service charges, and future projections – including major works.
Leaseholders are responsible for paying a share of the building’s insurance. The leaseholder has to be fully aware of the actual share of insurance to be paid.
It is crucial to take a moment to think about what will happen when you want to sell. Things to bear in mind include, administration fees, ground rents and leases falling below 70 years. These items could have an adverse impact on your ability to sell the property and ultimately lead to reduced demand.