Buying a short-lease flat?
If you are thinking of buying a flat, one of your first questions should be ‘is it leasehold or freehold?’
Most flats are leasehold. This means that instead of owning the property outright, you only have the right to occupy the property for a fixed number of years. At the end of that period of time, the property reverts back to the person who owns the freehold unless the lease is extended.
Steve Taylor residential property expert with Malcolm C Foy and Co Limited in Doncaster looks at the key considerations when buying a short-lease flat.
Freehold v leasehold
Leaseholders have to pay ground rent, typically £100-£200 a year. They may have little control over maintenance to the building, insurance, repairs to the structure or any common parts. These remain the responsibility of the freeholder, who recovers the cost from all of the leaseholders through a service charge.
Freehold flats are rarely available as freeholders cannot enforce positive obligations against each other. This makes it difficult to agree contributions to the costs of shared facilities e.g. parking or roof repairs. As a result, many lenders will not consider freehold flats for a mortgage.
When considering the value of your investment, owning a very long lease, such as 999 years, is broadly comparable to owning the freehold. Leases for new build flats are usually for a shorter term, such as 99 or 125 years. While that may seem like a long time, as the years go by the value of the property depreciates, unlike a freehold house. As the remaining term approaches 80 years, the decline becomes pronounced. The shorter the term, the faster the rate of depreciation increases.
Mortgage lenders differ in their requirements. If the term left is 70 years or less, you may struggle to find a mortgage.
Do not automatically rule out a short lease, as you may be able to negotiate a bargain. However, always take professional advice before committing yourself.
Extending the lease
Fortunately, as a leaseholder you have a statutory right to extend your lease under the Leasehold Reform Housing and Urban Development Act 1993. Effectively, this allows you to add 90 years to the remaining term. You will, however, have to pay a premium to the landlord for the lease extension. This can be agreed between you and the landlord although it is normal for each party to instruct a surveyor to negotiate the price.
However, the right to extend only applies to persons who have been registered owners of the lease for at least two years. If you want to extend the lease shortly after you buy, particularly if the term is nearing the important 80-year mark, talk to us as soon as possible. While you cannot start the extension process, we may be able to negotiate with the seller to assign their right to extend to you.
Buying the freehold
If sufficient leaseholders are interested, and the freeholder agrees, then you may be able to buy the freehold.
To find out more about extending a lease or if you are buying a flat, contact Steve Taylor conveyancing solicitor/lawyer in our residential property team.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.06/01/2016.