Leasehold Ownership Unveiled: Crucial Considerations for Prospective Buyers

Many questions may arise while purchasing a leasehold property. The questions that occur most frequently relate to the length of the lease and the service charges applied to buyers wanting to purchase leasehold property.

Our experienced chartered surveyor gives his advice on the six top leasehold issues.

What is Leasehold Ownership?

Leasehold ownership is the right to hold a residential property for a specified period. Leasehold ownership is based on lease terms but also has associated property rights. It has similar rights as a freeholder has but only for the specified length of the lease.

Residential Lease – Why is it Important

The residential lease is an agreement between the leaseholder and the landlord to establish the rights of both parties. The lease agreement defines the rules or obligations as to the use of the property, also how the landlord and leaseholder should deal with each other and any other leaseholders. In addition, it defines the landlord’s obligations relating to such issues as repairs, service charges, maintenance, and management of the property. Any leasehold agreement is crucial, and the leaseholder must understand the obligations, of both parties, that it contains.

The lease wording is usually in legal or technical vocabulary and will vary from property to property. Leaseholders who find it difficult to comprehend their lease should obtain advice from a surveyor and insist they deliver a report on its terms when required to negotiate with the buyer.

Any potential buyer must establish responsibility for key issues, including the landlord’s obligations for managing and maintaining the structure, exterior, and common areas of the property, what the leaseholder’s duties will be with regards to rent and service costs, and whether there are any unusual or onerous covenants relating to the leaseholder’s use of the property.

Things to know before Buying a Leasehold Flat

Leasehold flats may be in purpose-built blocks, converted houses, or attached to retail or commercial premises. Usually, the structural part of the building and the land will stay in the landlord’s ownership. The lease agreement will cover all the spaces and facilities within the four walls of the flat, including walls, floors, and ceiling, but will not normally include any external areas. The landlord is generally responsible for the maintenance and repair of the building. Additionally, it is the landlord’s responsibility to maintain common areas and the flat’s structure and services.

The property owner can be an individual, a local authority, or a company. It is also possible that the landlord is a resident management company. In some cases, leaseholders of a block of flats can apply to extend the term of their lease or can buy the freehold from the landlord.

Remaining Lease Length

The term remaining on the leasehold is crucial. Firstly, if the lease term drops below 80 years, the cost to extend the lease increases as an additional marriage value is added. “Marriage value” is the increase in the value of the property with a long lease as opposed to a short lease. Hence the value of the property will increase on the completion of the lease extension, meaning the cost of the lease extension increases once the lease length drops below the 80-year threshold.

For more queries related to the length of the remaining lease and how much any lease extension may cost, have a lease extension valuation undertaken by an expert lease extension valuer.

Another issue to consider is that the property’s value drops each year once or reaches less than 80 years. Therefore, you must apply for a lease extension or buy the freehold in order to maximize the value of your property.

What does the service charge cover?

Generally, a service charge is a charge for the leaseholder to cover the costs of any services that landlords provide, such as cleaning the common parts, repairing the roof, gardening, etc. For some leases, the service charge would be a fixed sum that will be payable on a regular basis. Leaseholders can ask for a breakdown of the service charges and also have the right to apply to the First-tier Tribunal for any unreasonable charges in England. During the process of buying a leasehold flat, the buyer should check the details for any existing and future service charges and should also check for any forthcoming work which might affect the service charge after the purchase.

Buying a Leasehold Flat, Is Worth It?

Historically, in the UK, flats have been sold on a leasehold basis. Some leasehold flats are now sold with a share of the freehold. Buying a leasehold flat should only be done once you are familiar with the legal rights and duties related to buying a leasehold property. You should consult a chartered surveyor and get appropriate professional advice regarding any property before you consider buying.