Purchasing a leasehold property
by Raminder Uberoi — Posted on 18 August, 2017
Ground rent and other considerations when buying leasehold property
Nationwide recently announced that it will no longer lend money to buy new-build properties with punitive clauses on ground rents or shorter leases. It will not lend on properties whose ground rent doubles every five, 10 or 15 years. Instead, it said rises should be linked to inflation. Nationwide said the maximum acceptable starting ground rent on all new build leasehold property would be limited to 0.1% of the property’s value, adding that ground rents had to be ‘reasonable’. The lender will not lend on new-build properties when the lease is for less than 125 years for flats and 250 years for houses.
Here are some tips to consider when buying leasehold property
- As the leaseholder, you will be required by the lease to pay ground rent, service charges, management fees and buildings insurance to the landlord or their appointed managing agent, on top of any mortgage repayments, utility bills. Such charges may vary from year to year.
- Be clear who the landlord is and whether they have a managing agent acting for them. In some cases, there may also be a management company involved in running the site as a whole and you may need to make payments for different charges to different people. Where there is a management company it may also have its own managing agents and may make its own charges on you as the tenant, which will increase the overall costs that you have to pay while owning the property.
- Before viewing any leasehold property always check the length of the lease remaining with your solicitor. Be aware that sometimes a leasehold property may seem cheap, but that is because the length of the lease is short (often meaning less than 80 years). Most mortgage lenders won’t lend on short leases which limit who the property can be sold to, i.e. cash buyers. If the seller can successfully sell a short lease they can avoid the additional costs involved in extending the length of the lease. Therefore, if you find that the property you are buying has a short lease you should request that the seller obtains an extension of the length of the lease at their expense and before you buy it. It is usually the responsibility of the seller to extend the lease with the landlord as the cost of doing so can be tens of thousands of pounds. If the number of years left on a lease goes below 80 it is more expensive to extend it, as the landlord is then allowed to charge the tenant something called “marriage value” which can increase the cost of any extension dramatically.
- Always check the description and plans of the property within the lease carefully against the physical layout. If there are any discrepancies you must alert your chosen lawyer as soon as possible. Any discrepancies can have serious consequences and can be expensive and time-consuming to correct. It is vital to have any amendments made by the seller at their expense and before you buy it.
How we can help
Starck Uberoi Solicitors have many years of experience dealing with leasehold purchases; our solicitors will be on hand to guide you through every stage. To make an appointment call 020 8840 6640. We are based in Ealing, our office is located 10 minutes from Ealing Broadway Station.