Leasehold transactions can often be complex, with each lease having its own unique variations or circumstances.
The most important part of your purchase of a leasehold property will be the lease itself, which shows all of the obligations for your specific purchase; be they financial, parking, maintenance, rights of way and so on. We will report back to you on all of the details within the lease so that you can understand and consider any relevant points. A common issue we come across is for leases with less than 80 years remaining – this may sound like a long time but in actual fact it may be necessary for either you or the seller to extend this lease before anything can progress. (For clarity, the freeholder would be the person or company that owns the entire building, and the leaseholder is the person who owns one of the flats or apartments within it).
During the process of drawing up your lease report, we will, as standard, check all elements of the lease and inform you if anything is defective. We should be able to correct these defects for you as part of your purchase, usually with a Deed of Variation or, if this is not possible, we will try to offer some protection through a relevant indemnity insurance policy. We will always keep you informed and guide you on the best action we would recommend to remedy any defects.
In most cases, a leasehold property owner will also have the obligation to pay ground rent and / or a service charge to a management company, or the freeholder themselves. The service charges usually cover repairs and maintenance to the building as a whole, including communal areas like hallways, or maintenance of any garden areas. We need to thoroughly check this information, which we will request from the seller’s lawyer. It’s important for us to make sure that all service charges payable by the seller are completely cleared and discharged and do not pass to you – the charges tend to lie with the property owner at the time rather than the historical owner at the time the charges were accrued. (Rest assured that our checks are carried out to ensure these charges do not pass to you. This stage can sometimes take a bit of time, as management companies are often privately run and tend not to be regulated, meaning they can respond in their own time and with their own set costs.
Once draft contracts are checked, we raise any enquiries we feel necessary, some of which may be complex which can take some amount of correspondence back and forth to resolve.
There are three relatively common scenarios which can arise when dealing with leasehold properties:
1 – Extending your lease only
There are two options available to extend a lease; a statutory lease extension and an informal lease extension.
You would have the right to a statutory lease extension if you have owned the property for at least 2 years and it’s a long lease; the original term must be more than 21 years. In this circumstance, the freeholder must extend the lease by 90 years with no ground rent added however; you may need to pay a premium to the freeholder for this. (There is a formal calculation for this premium which can be carried out by a surveyor – we would be able to guide you through this)The other available option is an informal lease extension, where you would agree terms to extend the lease directly with the freeholder. Although this option tends to be quicker, the fees and terms are usually at the discretion of the freeholder, i.e., a limited time extension or ground rent increasing.
2 – Purchase a share of the freehold
In the purchase of some flats or apartments, there may also be included a purchase of a share of the freehold. You (or your estate agent) should make this clear at the time of instruction so that we have all the necessary information from the beginning. There are usually two ways in which you can purchase a share of the freehold, and after careful consideration when checking the title documents, we will advise you on which is relevant to your transaction.
3 – Purchasing the whole freehold (enfranchisement)
As well as extending the lease on a property as mentioned earlier on, another option you may have is to purchase the freehold itself. The Leasehold Reform Housing and Urban Development Act 1993 allows a group of leaseholders to apply to the freeholder of their building to purchase the freehold together. The benefit of doing this is that you can control your own lease, extend it on your terms and run the management of the building that your flat is in. There are, naturally, a few conditions that need to be met before you may apply to purchase the freehold of the building. These are:
- The building must contain a minimum of two flats
- If there are only two flats, both owners must cooperate and participate
- In a larger block of flats or apartments, at least 50% of the leaseholders must take part
- No more than 25% of the internal area of the building may be for commercial use – e.g., a ground floor coffee shop, office or restaurant.
The costs of this may be calculated in a similar way to the extension of a lease, however it can become complicated if some of the leaseholders who participate have different lease terms remaining. Often, there may be a negotiation on how much each person will contribute in these circumstances.
We can help you begin this process by calculating the cost for a lease extension and also a lease enfranchisement to help you understand your preferred option. There may be further decisions to make about lease enfranchisement; weighing up the benefits and potential disadvantages. For example, you may benefit from purchasing the freehold by saving on legal fees as the leaseholders can come together, as well as choosing how the building is managed and maintained.
The biggest potential disadvantage is often down to the number of parties involved, and therefore the greater chance of disagreements or tensions arising with your fellow leaseholders as you are negotiating through this process.
Our specialist leasehold conveyancing partner Cook Taylor Woodhouse will be happy to help you understand the purchase of your leasehold property and will talk through any of the given circumstances which are relevant to your transaction so that you are fully aware of your options. They can be contacted in the following ways:
Telephone: 020 8859 9297
Get a quote: ctwsolicitors.co.uk/get-a-quote/