Everyone is aware that Owning a leasehold property has its advantages and some disadvantages.

Owning a leasehold property is becoming more and more common. Apart from the fact that most new developments consists of flats and therefore necessarily leasehold properties, many people also prefer to own a leasehold property because they only have to maintain the interior of the flat and not the building or grounds, which could take considerable amount of time and effort. Leasehold flats are often cheaper to buy than freehold houses and so those entering the property ladder may find it easier to own a leasehold property.

However, while purchasing a leasehold property there are many factors that one needs to be aware of, both during the purchase, which usually the Conveyancer acting on the matter will highlight, and also after the purchase and in the future, particularly if one is expecting to be owning the sale flat for long time.

Newly built flats usually come with the builder’s two year warranty and a New Build warranty lasting 10 years, covering structural damages or serious repair issues apart from the Planning and Building Control certificates which provides assurance that the construction compliant with current regulations.  Therefore, it is usually expected that such properties do not have serious issues, unless they are affected by the by now well know cladding and fire hazard issues.

Purchase of a resale flat could have many other issues that one need to be aware of, most importantly, the remaining term of the lease. In a real case, a Kensington flat was owned by an elderly gentlemen who passed away, leaving a will. The executor and beneficiary of the will got a grant of probate and under it transferred the property to the name of the executor. It all went smoothly, or so thought the Executor, until he tried to sell the flat, as he did not need to keep it.

To his horror he learned that the flat only had a lease term of 7 years left, meaning that after that period the flat will merge in the freehold and will have no value.  Therefore, there was no buyers for the property.  As he was advised by the agents to get the lease extended to make the flat marketable, he explored that option and even got a purchaser to agree to buy the flat with the benefit of a Statutory lease extension notice served on the freeholder. Then came his second major shock, that he could not exercise a statutory right to extend lease as the property was recently transferred to his name and he needed to own the leasehold title at least for two years before he could exercise the statutory right.  Realizing his weak position, the freeholder refused to agree to an amicable lease extension, leaving him with a flat which was virtually unsaleable, and a lot of head ache.

The lesson from this is that if the Transfer after the death of the proprietor was done through a solicitor/conveyancer who is experienced in leasehold matters and some exposure to wills and probate issues, they would have highlighted the fact that the executor could have exercised the statutory right to extend lease as executor for a period of two years after the grant of probate. He would have been further advised that if the property was transferred into his personal name, he would have to wait for another two years, before he could exercise the statutory right. Considering only very few years left on the lease, these restrictions had serious adverse effect on the value and marketability of the property.

Therefore, it is important for anyone owning a leasehold property to be aware of the length of term remaining on the lease and to ensure that the lease is extended in time to protect the value of the property.  As a rule if the remaining term of the lease goes below 85 years, lenders become hesitant to lend on it and therefore the marketability of the property is limited.  The shorter the remaining term of the lease, the higher the premium payable for a lease extension. An experienced valuer/surveyor would be able to advice on the premium payable depending on the condition of the flat, the locality and the term remaining on the lease.

Another aspect that one should be aware of is the ground rent and service charge payable which are recurring costs. According to current regulations, new leases cannot prescribe ground rent, unless it is a lease extension where parties have agreed to keep a ground rent. However, transfer of existing leases with ground rent provisions will continue to be liable to pay ground rent until the expiry of the current term, unless varied.  Many leases may have provisions increasing and in some cases doubling ground rent at periodic intervals, which one must be aware of. A ground rent that goes above the threshold prescribed could make the lease be treated as a short hold tenancy, losing the statutory protection of a long leasehold residential property. Another area to be aware of!

While a flat in a well maintained building with all amenities is very attractive, one must be aware that such flats will also have significant service charge costs, which are recovering expenses. So be sure to verify what these costs are likely to be and if any significant increase is likely in the near future.  The flat owner is responsible to contribute to the cost of repairs of the building and common parts, and as the building becomes older, unless there is a significant sinking fund or major repair fund which could cover such costs, the flat owners could end up contributing significant amounts towards the maintenance of the building.

Building that are 5 Storey or more or 11 metre or more, whichever is reached first, also attract the provisions of the Building Safety  Act 2022, which one needs to be aware of.

In summary, owning a leasehold property is not as simple as it sounds, and one should proceed with  eyes wide open and with assistance from knowledgeable and experienced professionals.  This is a generic advice relating to some leasehold matters and issues could be different depending on the individual circumstance. If anyone has a matter that requires more specific advice, feel free to contact us.

Peter Augustine

Partner & Head of Conveyancing tel 0208 735 9794 or email pa@hpwsolicitors.co.uk

 


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