How to buy or invest in a leasehold flat
When buying a flat it tends to be a little more complicated than buying a house. As a result it can also take several weeks longer to purchase.
The reasons it takes longer are that the flat is part of a building which is fully owned by another individual or company. The building also sits on land that is not owned by the person who owns the flat. In actual fact, the flat owner is really only 'renting' the space they live in usually for a set period of time.
In legal terms, this is known as a 'Leasehold' property and typically relates to a flat as opposed to a house.
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Understanding Leasehold Properties
A leasehold property can apply to converted properties, but is more likely to apply to a flat in a block. It is a little bit like renting and having a landlord. The Leasehold Agreement will include:-
Freeholder's Responsibility
- Freeholder's contact details.
- They are financially responsible for maintenance, repairs and buildings insurance.
Leaseholder's Responsbility
- Pay ground rent and service charges.
- Pay the contents insurance.
- Take reasonable care of the property.
- The length of the original lease and how long is left.
- Any restrictions on the use of the flat.
However, there are moves afoot now to change the way the leasehold system works for the future. The new system which runs alongside the existing one (in England and Wales) is called 'Commonhold'. Briefly, the main change will be that there is no time limit on the lease length. Current leaseholders can even now apply to buy the freehold and take over the running of the building themselves. For more information visit the Leasehold Advisory Service.
If you are buying/investing in a flat, whatever the country, you need to do some extra checks:-
- Who are the people upstairs/downstairs/either side?
- Check noise levels at busy times of the day.
- What access to parking do you have?
- How insulated against noise is the property?
- Who is the freeholder - a company or an individual?
- Terms of the lease - especially how many years are left?
- Are there any restrictions on use of the property? For example, running a business from the flat, renting a room to other people.
- Will your furniture fit up the stairs to the property?
- Are there any major works that have just been done or about to be done?
- What are the current/past/future ground rent and service charges (you'll need to see about five years)?
Additional Costs of Owning a Flat
During the move process, your legals will cost between £100 and £200 more as they have to do extra work to find out about the freeholder and look through an often 50 page thick leasehold document.
After the move, you will have the usual costs to pay for the internal decoration and fixtures/fittings of the flat, but then you will also have to pay 'Ground Rent' and a 'Service Charge'.
Ground Rent
This is money paid to the Freeholder (ie the owner of the land) for its use and ranges from a few pounds a year to hundreds of pounds per month.
Service ChargesThis is the money usually paid on a monthly basis to the Freeholder. It forms part of the Lease contract and pays for maintenance of the shared areas for the flat, such as the hallway, garage block, roof or drainage. The amount of service charge can vary greatly from a few pounds per month to several hundred.
The service charge is really important to understand as it can be increased and changed at least annually. The main issue to understand is whether the service charge pays for all maintenance, rather than having to pay out hefty sums of money in one go.
For example, large fixes such as window or roof upgrades can cost an individual flat owner several thousands of pounds without any notice!
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