Terms of Leasehold Flats – What to look out for
An increasing number of properties are being brought as leaseholds and an increasing number of buyers are not aware of the bigger picture surrounding owning a leasehold property.
Leasehold flats are becoming a preferred choice for first time buyers who are enticed by the aesthetics and convenience of the services that come included. However, with this comes a host of factors and some of which can mean the difference between having a home that is worth what you have paid for against one that isn’t.
So what are some of the main factors to look out for when buying a leasehold flat?
1. How many years is remaining on the lease?
Leases of below 80 years can start to impact value when compared to a like property with a longer lease. This can have the added effect of mortgage lenders being reluctant to lend on such properties.
2. What ground rent is payable?
Developers have inserted clauses into leasehold contracts where the ground rent is set to double every 10 years. This means the ground rent could soon spiral to absurd levels. If you find yourself owning a property subject to such clauses, it could mean that you will have difficulty reselling your property as lenders are reluctant to lend on properties with onerous ground rent clauses. Legal advisers will also warn their clients against entering into such contracts.
3. How much is the service charge?
Most lease require a freeholder to maintain and repair the building, but leaseholders have to share a contribution of the cost through a yearly service charge. You should obtain a management pack from the freeholder which will provide details of the current service charge budget, but also accounts for the three preceding years.
4. Is the building properly managed?
Having a poorly managed building can suggest there is an absent freeholder and or/incompetent management company. This may cause difficulties in the future when considering lease extensions, repair works are required to the building or consent is required under the lease.
5. What covenants are included in the lease?
Freeholders are known to incorporate an array of restrictive covenants within the lease from the keeping of pets to the type of flooring. You should ensure you are familiar with the covenants within the lease and bearing these in mind, the property is suitable for you. Breaching the terms of your lease can have consequences which can become costly.