When buying property in England or Wales there are two main types which are called freehold and leasehold.
Freehold: When you buy a freehold property you are buying the property and the land it is on and it is for an unlimited time period.
Leasehold: As a leaseholder you do not own the land the property is built on, so as the leaseholder you just rent the property from the freeholder for the period setout in the lease agreement.Get an Instant Quote >>
Buying leasehold property in England and Wales
Many real estate properties are sold as leasehold properties. A lease is a contract whereby a freeholder coveys a property to another in an agreement for a fixed periodic payment. With leasehold, you get exclusive possession of a property for that fixed period, but you do not actually own it. Leases vary depending on the agreement of the conveyor and the leasehold property buyer.
Most flats are leasehold and houses can be leasehold too.
It is essential that when you want to purchase a property, you fully understand the lease you are given by the conveyor. This helps to avoid any future difficulties in figuring out the property owner. You should look into several details when buying a leasehold property such as the actual lease duration, any ground rents or maintenance fees applicable to that property. It is wise to invest in a property only when you have all the crucial information in understanding your actual ownership of that property.
A legal advisor will inform you of the benefits and shortcomings of owning a leasehold property, before you invest in one. For further clarification, when you buy a leasehold property, you may own the property for the agreed period but not the actual land the property is built on. Therefore, you will be required to pay a certain amount in the land’s ground fee. You must fully understand the extra cost of purchasing a leasehold property by studying the terms and conditions of the lease given by your conveyor. Some leases can last for 99 years, while others are as long as 999 years and more. Be wary of investing in lease property that is shorter than 90 years, because you may face difficulties in getting a mortgage on it or upon trying to sell it. The landowner on which the leasehold property sits will require a ground fee on the lease. When you purchase the leasehold property, you will have to pay the annual fee, which is fixed. You must get help from a professional advisor to investigate all aspects of the purchase or sale.
Leasehold property owners may face the challenge of paying a higher ground fee after some years of owning the property. Research shows that some people miss the small details that give the freehold owner authority to increase the ground fee. If your ground rent doubles, say, every five or 10 years, you could face bills running into thousands and may not be able to do much about it. You are essentially at the mercy of your freeholder if they choose to ‘up’ the costs.
A service charge is also a part of investing in a leasehold property. This charge is the amount you pay to contribute to the maintenance of the property. It may include security, cleaning, gardening, and any other upkeep services of the building. All leaseholders are obligated to pay this fee, and you have to study the terms of the lease before you make a final decision. Your solicitor should review the lease and give you legal advice on the service fee. You should be informed if the service fee you pay will increase after a period of time. In most leases, the service fee paid is fixed and expressed in writing in the lease. It should be stated clearly on the lease for you to know if the fixed fee can change or not before you invest in the property. Having your solicitor lookout for all these crucial details helps you protect your investment and avoid having future misunderstandings with the property seller.
Understanding all the clauses in your lease is crucial. Seek expert legal advice on the lease agreement before you invest. You have to know what you are subjected to when you buy the leasehold property, by understanding the restrictions and rights given to you. You may find conveyors have stated several restrictions when selling a leasehold property, making it hard for the buyer to resell or get a mortgage. It is vital to clearly understand the process.
Work with a solicitor and real estate agent to understand all details of the purchase. Getting legal assistance when investing in such a property helps you avoid miscommunication. With legal help, it is easier to understand the lease and make an investment with the confidence you know what you are doing.
Under the 1993 Leasehold Reform Act, most flat-owners are legally entitled to get 90 years added to their lease at a fair market price, but you must have owned the property for over two years before you apply.
If the lease falls under 80 years, then you will have to pay considrably more for the extension.
In conclusion, buying a leasehold property is not an easy task that can be done overnight. You will have to be patient and ensure you employ a professional legal team who are attentive to the legal details of your specific leasehold purchase. Investing without legal advice will undoubtedly lead to future legal issues and problems. If you fail to pay your annual fee the leasehold seller can take legal action against you. In the eyes of the law, you are a tenant to freehold owner, with a fixed lease on the property, for the period agreed according to the lease. You risk losing the property to the freehold owner if they win the case after filing a legal complaint due to your failure in settling your annual fees as per agreement.
Insurance on the leasehold property is the responsibility of the purchaser and this in turn must be in line with the leasehold legalities.
Make sure you ask your conveyancer or solicitor to explain all charges fully.Get an Instant Quote >>