This nearly new two-bedroom, top-floor apartment is on the market with Romans for £184,950. The property offers plenty of space for the money, is in a pleasant location and has a high level of security.
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Leasehold living has attractive advantages
By Halima SadatFebruary 05, 2009
If you’re thinking of buying a flat, it is almost certain that you will be taking on a leasehold property. But what does that mean exactly and how does it differ from buying freehold?
The main and vital difference is that with a freehold property, the building and the land it sits on belong to the owner.
But with a leasehold property, the person who owns the lease only has ownership of the relevant internal part of the building. The freeholder (or landlord) retains ownership of the external walls, the roof, any structural walls, communal areas and the plot.
In effect, therefore, someone with a lease has bought the right to live in the property rather than the actual bricks and mortar.
Buying a lease of this type involves a large one-off payment to obtain this right for a defined number of years, in contrast to short-term tenancies where monthly rent is paid and termination of the agreement between the parties can be made at any time.
In practice, few houses for sale are leasehold, although they do crop up from time to time. The vast majority of leasehold properties are flats, with each resident in the building having their own individual lease.
The lease is a contract between the freeholder and the leaseholder and sets out the rights and obligations of each party. And where contracts for sale may generally be relatively standard, the huge variation between leases means that terms must be carefully scrutinised before signing on the dotted line.
The lease will be included in the Home Information Pack, so you will be able to read this well in advance of agreeing to the purchase.
Because of all the possible variations, particularly regarding add-on payments, it is imperative to understand the various clauses within it — or ask your solicitor to explain them to you because leases can be complicated.
In effect, landlords can insert whatever terms they wish. This could include restrictions such as not keeping pets, not making excessive noise, not hanging washing from a balcony or disallowing sub-letting.
You may be permitted to make cosmetic alterations inside the apartment, including redecorating or adding a new kitchen or bathroom, but it is unlikely you would be allowed to undertake radical changes, like replacing the windows or making permanent changes to the room layout of the flat and so on.
Conversely, a leaseholder is entitled to ‘quiet enjoyment’ without interference from the landlord.
In addition, nothing should be assumed. For example, although a landlord is usually responsible for maintaining communal areas, check the lease to ensure this is the case.
And remember, once a lease is signed, terms and conditions within it cannot be changed, so it’s essential to be happy with its contents from the outset.
Michael Usher, an independent mortgage adviser based in Frimley, calls for caution when buying leasehold.
“Although leasehold is commonplace in England and Wales and the norm when it comes to purchasing a flat, we recommend that our clients get as much information as possible upfront,” he said.
“They should make sure they have conversations that they understand with their solicitors to ensure any curious restrictions are well explained.
“What may seem an obvious right of way may not be, and it is important for your future happiness in the property to fully understand the terms on which you are buying it.
“There could be unreasonable restrictions, for instance, and you need to fully understand the maintenance and repair obligations. You don’t want to move in one day and find you’re asked for £5,000 towards the roof repairs the next.”
Perhaps the most important term is that concerning the length of the lease. A lease will be for a set period and within this time, it can be sold on by the leaseholder to a buyer, with the seller relinquishing their interest in the property.
In this case, the purchaser will buy the period remaining on the original lease rather than creating a new one from scratch, and the terms will stay the same.
However, sometimes a leaseholder can create another lease within the original lease which they then sell to a third party while retaining their own leasehold agreement with the freeholder. This is known as sub-letting and it is even possible to have a chain of landlords, each sub-letting their interest to the next in line.
A typical situation where this could arise is where a buy-to-let landlord has bought the leasehold on a flat with a view to sub-letting it to a tenant, although this second lease is likely to differ considerably in its terms and duration from the original lease.
However, if this is something you have in mind to do at some time in the future, it is important to ensure that this is permitted under the terms of the lease you are buying.
Most new leases are drawn up to run for either 99 or 125 years, and a few for as long as 999 years. The length of time is important, as it will affect the value of the lease, particularly where an existing lease is being sold on.
Pricewise, leases follow the freehold market, so when property prices go up, so does the value of leases and vice versa. This means that despite a lease becoming shorter, it can still increase in value over time.
As a general rule of thumb, the shorter the lease, the lower its value. But if you’re a purchaser, don’t look on a very short lease as an unrepeatable bargain. It could be storing up trouble for the future.
Michael Usher said: “There must be at least 60 years to run to get a mortgage on a leasehold property, and you must think about what will happen if you decide to sell in 10 years’ time.”
So if you’re buying an existing lease, establish how much time will remain should you decide to sell at a future date. If it will fall below the 60-year threshold or will be near to it, your lease could be extremely difficult to pass on.
All is not entirely lost because, as a leaseholder, you have the right to extend your lease — and thereby increase its value — for up to 90 years, although this could be an expensive process.
As James Baldry of Bridges explained, the cost of doing this varies widely depending on the attitude of the landlord.
“Some landlords will extend the lease for a nominal sum, while others will ask for thousands of pounds,” he said. “There is no hard and fast rule other than the fact it must be reasonably priced.”
Assuming that you have your mortgage, there are just one or two other financial considerations to take into account when calculating your outgoings.
There will be some extra expenses to be paid on a regular basis and these include ground rent. This is an amount of money which is paid to the landlord to allow you to use his land and, again, it can vary from a small sum to something more substantial.
Similarly, service charges, which cover maintenance and repairs of communal areas, will differ according to the size and age of the building and the provision of any ‘extras’, such as garage parking or the employment of staff, for example, a regular gardener, window cleaner or porter.
But it doesn’t end there. Many landlords also establish a ‘sinking fund’ into which the leaseholders pay a specific sum every so often to cover large repairs when they crop up, such as a new roof, redecoration of the exterior or repaving of walkways.
Alternatively, leaseholders may be asked for a one-off payment to cover this kind of eventuality as it arises, although the landlord must consult them before instigating such works.
ut for anyone thinking of buying leasehold, as long as you know what to expect, these extra costs should not be a deterrent. According to Robert Bassett of Romans, splitting the cost of maintenance can actually be an advantage of living in a leasehold property.
“Unlike the situation for freehold owners, for leaseholders any costs for maintenance and major repairs is spread between the tenants, so you don’t have to find all the money yourself,” he said.
“For example, an apartment block might have a bigger roof in need of repair than that on a house, but the financial outlay is shared. And you don’t have to sort it all out yourself, either. Someone else will do that for you.”
And this was not the only advantage to leasehold living, he added. “The vast majority of leasehold properties are apartments and per square foot, a leasehold property works out cheaper than a freehold one,” he said.
“This means a £200,000 flat will be bigger than the equivalent freehold house.
“Other advantages include the fact that, by living within a community, the level of security is higher, too, and there could be things like door entry codes and answering services to keep out unwanted visitors.
“In addition, many of the new apartment blocks are in town centres, so if you want a bit of night life and good communications for work and social reasons, it can make sense to live in one of these new buildings.
“With more single-member households and the fact the government is calling for increased development in the form of apartments, it could be that in this country we will become more accustomed to a way of living that is already commonplace in the rest of Europe.”
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