Navigating Leasehold Property: The need for a specialist solicitor

This article written by Kaitlyn Griffin, Trainee Solicitor with MJP Conveyancing,  aims to help you prepare questions when dealing with estate agents for potential leasehold property and to educate you on some key points your solicitor will review during the transaction.

What is Leasehold?

Leasehold is a type of property ownership where you own the property, but not the land it stands on - this is owned by the Freeholder also known as the Landlord. The landlord grants a lease for a specific period, usually between 125 to 999 years. 

As part of the lease terms, an annual ground rent is payable to the landlord.

Lease Length and Extensions

When purchasing a leasehold property, it is crucial to consider the remaining length of the lease, also known as the lease term. A shorter lease term below 80 years can impact the possibility of obtaining a mortgage and negatively affect the property's value. 

Hence, it is recommended to be aware of the lease term before engaging the solicitor.

If you intend to purchase a property with a shorter lease, please note that it can still be extended. However, the shorter the lease term, the pricier it is to extend. The extension cost is based on factors such as the number of years remaining on the lease and the property's value. Therefore, it is advisable to check with the estate agent if the seller has already included the lease extension in the sale.

Ground Rent

Ground rent refers to the payment made to the Freeholder by occupants of the land the property stands on. It would be better to find out the current ground rent and if the rent is subject to a review in the future. 

Some mortgage lenders may be hesitant if the lease contains an escalating ground rent clause, mainly if it has a doubling element. You can ask the landlord to revise the lease terms, but the process can be costly and add delays to the purchase.

If you plan to purchase a new lease, your solicitor should inform you of recent legislative changes that may prohibit the inclusion of ground rents. This zero ground rent is often referred to as a ‘peppercorn.'

Service Charge and Major Works

When purchasing a leasehold property, it's important to be aware of the financial obligations included in the agreement. 

In addition to ground rent, leaseholders are typically responsible for a service charge that covers the maintenance, insurance, and upkeep of communal areas and facilities. 

The amount of the service charge varies depending on the services provided by the landlord and can increase in the future. 

Leaseholders may also be liable for ad-hoc maintenance and insurance contributions.

Another potential cost to be aware of is major works contributions, which the landlord may seek for schemes of work exceeding £250. 

It's recommended to inquire about any upcoming major works before agreeing to a purchase price. A significant reserve fund can be helpful to offset costs of major repairs or decorations. It's also advisable to have a surveyor assess the overall condition of the building before purchasing.

Covenants

Leasehold agreements impose certain restrictions, referred to as covenants or regulations, on what the leaseholder can do with the property. 

These can include limitations on structural alterations or additions, types of flooring, and whether pets or sub-letting is allowed. It's important to be aware of these restrictions and consult with a solicitor to determine if any alterations or changes are permitted under the terms of the lease.

Before purchasing a leasehold property, it's recommended to inquire about any covenants that may impact the intended use of the property.

Instructing a Solicitor

Navigating the complexities of leasehold property can be challenging, and the need to instruct a solicitor who has experience and expertise in leasehold property is essential. 

MJP Conveyancing specialise in this area of work and has a team of specialists to guide you through the process. 

To obtain a quote or begin your leasehold purchase or sale, call 01603 877067 to speak with a team member.