When it comes to buying a property in England and Wales, there are two different types of ownership that generally apply: freehold or leasehold.
When you buy freehold, you own both the building and the land it’s standing on outright. When you buy leasehold, you own the building but only lease the land from the freeholder (or landlord) for a specific time and must pay ground rent and possibly service charges annually on that land.
Buying leasehold can be a complicated and potentially expensive business. The exact details of the costs and responsibilities to you as the purchaser are likely to be hidden in the small print of the contract to buy; for example, you may pay your annual charges to a managing agent working on behalf of the leaseholder. How much and how often is a pertinent question to ask.
Remember, your property lawyer has no control over these external costs as they are applied by a third party, but when you commission a conveyancing solicitor through Homeward Legal, he or she will keep you updated on what demands are essential to the purchase.
So what are the hidden costs involved when you buy a leasehold property? Homeward Legal takes a look at the transactions involved and reveals the crucial details you should be looking for before putting pen to paper on a contract.
The charges to look out for
There are a number of charges imposed on you when you buy a leasehold property from ground rent to service charge and a share of buildings insurance. However, even simply becoming the new lessee can bring a cost. Your conveyancing solicitor may have to provide a Notice of Assignment to the landlord informing them you are the new owner and you’ll have to pay for that privilege, likely to be around £100 plus VAT.
If you are buying with a mortgage, another essential document is a Notice of Charge that informs the landlord a third party holds an interest in the property. The cost of this could be anything from £50 to £200.
Freeholders may also demand the new owner of a property enters into a Deed of Covenant with the landlord or managing agent. This is effectively a direct contract between the buyer and the leaseholder that confirms you will indeed agree to pay all service charges, including those for common repairs and maintenance. This deed might be part of a landlord’s pack provided to your solicitor by the seller’s solicitor and can cost up to £350, though it might be more.
Many leasehold properties in England are flats or apartments and some of them are what is known as commonhold, where the lease of the entire property is held by all of the owner-occupiers. That brings with it the possibility of another charge – becoming a shareholder in the management company or residents’ association that runs the building. There is usually only a nominal fee involved in having a share certificate issued in your name.
Annual and monthly outgoings
When you buy a leasehold property, you are also buying what remains of the lease – that might be a long one running for several decades or a much shorter one. Regardless of the length of the lease, the annual ground rent should be fixed for the term of that lease. So you will know from the start what your annual outgoings on ground rent should be. Ask your conveyancing solicitor to check the terms of the lease to ensure there is no escalation in the ground rent, for example, after 10 or 20 years, a practice that has become more common in leasehold.
Monthly service and maintenance charges are likely to vary, depending on work required. Fees to the management company engaged by the landlord to run the building should also be factored in, though these should be fixed. Details of these fees will be outlined in any landlord’s pack provided to your solicitor – do ask for full information so you know before any deal is sealed what you’re signing up for.
Encountering unexpected expenses
Some communal properties run a reserve fund for residents. This means you will be asked to front up money to be kept in case of any emergencies, such as storm or flood repairs. Again, the time to find out about this is before you buy, so do ask your Homeward Legal conveyancing solicitor to check if you will have to contribute anything to a reserve fund. The cost might be in thousands so this is an important factor to consider.
If you’re downsizing and looking to move into a retirement property or one with warden assistance, you will have hefty monthly management fees to take into account. Some even charge an acceptance fee that analyses your suitability for the property.
Retirement properties may also be subject to a transfer fee, where the buyer has to pay for the remaining lease to be transferred to them. These fees were the subject of an investigation by the Office of Fair Trading that reported in 2013, and while they have not been outlawed, many management companies running retirement properties no longer impose a transfer fee. Do ask your solicitor to clarify this matter before buying.
Homeward Legal’s nationwide panel of conveyancing solicitors and licensed conveyancers are experienced in dealing with leasehold purchases and sales and can give you the expert advice you require. Call our team now on 0800 038 6699 or get a no-obligation quote here. With Homeward Legal’s no-completion, no-fee guarantee, you can be assured you won’t be out of pocket if your transaction is not completed for any reason.