In almost all instances when buying or selling an apartment or maisonette and on occasions, a house, you will encounter a lease. This in turn will require an element of leasehold conveyancing and the extra work that goes into this aspect of your sale of purchase.
The term leasehold is used when effectively leasing the property concerned from the freeholder, the person(s) or company that own the building and associated land.
How do Leaseholds Work?
The processes involved within this additional portion of moving will include the following components; reviewing the lease and its terms, length of the lease, appointed management company, service charge costs, ground rent, annual management charges and whether work is due to be undertaken to the building. Let’s look into these individually.
One of the first points to review are the lease terms, ultimately a contract between the lessee and the freeholder (potentially referred to as the landlord). The terms will set out conditions surrounding the right to occupy the property, any obligations to be adhered to and whom the freeholder is. This is a key facet to obtain quickly as it will almost certainly raise enquiries from the buyer and their property solicitor, generally after a report on title has been compiled. Always ask questions no matter whether you feel trivial or not and ensure you fully understand any responsibilities.
How Long can a Leasehold Last?
Another crucial point to consider is the length of the remaining lease. The selling estate agent should have provided this in advance of any offer being made, however, this will of course be checked by your conveyancing solicitor. Be aware, a lease below 80 years will incur what is called a marriage value when coming to extend the lease and a figure approaching 70 years could affect the mortgage lenders decision. A shorter lease will indeed directly influence the property’s value due to the cost related with an extension, always bear this in mind when a lease is below or close to one hundred remaining years, it may have 101 years left now for example but what about when you sell in say ten or so years time? Extending a lease is very likely to be less expensive the longer that remains, any detrimental impact on the value will be softer too, not to mention also finding a future buyer. Please note, if a lease extension is required, in almost every instance a new leaseholder will have needed to own the property for two years prior to being eligible to do so. If the lease is a little lower than one would like, hopefully, this is reflected in the sale price and potentially the current vendor could initiate the process, avoiding the two-year delay.
In almost every apartment building, the freeholder and occasionally the residents will appoint a management agent. Their role is to oversee the maintenance of the block, any outside space, accounts and insurances.
There is likely to be a service charge too, this will include a financial contribution to the upkeep of things such as; communal halls, lift(s), gardens, parking areas, security, entry and fire systems, buildings insurance, management fee and a sinking/reserve fund.
There will also be a ground rent charge. This is a payment to the freeholder as you effectively rent the unit within the building and land it is on. This can incrementally increase to varying degrees. Your conveyancing solicitor will quickly ascertain these costs, ensure you feel they are fair and ask questions about any recent or potential future increases in these service charge and ground rent fees.
There are other important responsibilities undertaken by the managing agent and aspects your conveyancing solicitor will potentially need to establish prior to you being satisfied; are there future refurbishment works planned? Is there a reserve fund to cover the cost in part or full? Are there any payments due by the current owner to balance their outstanding payments before they complete a sale? What exactly are the spaces you can use or need to maintain such as a loft or garden area? What exactly can you do going forward, must you acquire permissions for certain things such as renovating your property? Will there be charges levied against you when you need this consent? Who is responsible for ensuring communal areas are in good order and maintaining the structure of the building?
Let us know to try to highlight what costs your property solicitor may need to charge in connection with this extra work surrounding a leasehold tenure:
- Leasehold fee, charged by conveyancer for additional work – £150
- Management/leasehold pack, contains much of the information we refer to in this article – £350 on average, dependant on management company.
- Notice of assignment/transfer, current leaseholder must inform managing agent that they are selling their interest in the property – £ price dependent on management company
- Deed of covenant, promise to the landlord/freeholder that you will observe the contents of the lease – £ price dependent on management company
- Licence to assign, this alerts the managing agent and freeholder to a change of ownership – £ price dependent on management company
- Certificate of compliance, document to confirm change of ownership with land registry – £ price dependent on management company.
(An approximate worst case scenario, if you require the above four documents to all be obtained, would on average be circa £700)
- Possibly indemnity insurance will be required, this could protect any new owner against liability for something previously undertaken such as, was consent obtained for installation of a fence or is a document missing for example. This cost can vary but within a general range of £20-£300 per policy.
Lease extension process basics explained. Contact (or if buying and not wanting to wait two years ask current owner to contact) freeholder/managing agent and via a specialist conveyancer, serve a section 42 notice. Thereafter it is likely the freeholder will instruct and send a surveyor to the property (generally at your cost) to ascertain the value of the property. This in turn will allow a calculation to be undertaken based on a combination of that value and the remaining years left on the lease to establish the total charge. This figure is negotiable so always go back with a counter bid. Then there will be a various other tasks your appointed solicitor will need to complete, such as; assigning the application, notifying land registry, preparing notice. Please always consult a specialist for advice before initiating the process.