- Conveyancing of leasehold properties can take longer as, in addition to all the usual considerations of buying a freehold property, buyers and their legal representatives must consider all aspects of the lease, how the property is maintained and whether safety, insurance and finances are in order for the building. As leases are not created in a standard form, each one needs to be carefully reviewed. One outcome can be the requirement to vary the lease terms before they can be considered satisfactory. This can take more time and incur additional cost but is essential to ensure buyers will be able to enjoy the property as they expect, once purchased.
- The most common lengths of lease for an initial period of 99, 125 or 999 years. The term reduces as time goes by with the unexpired term remaining having a significant impact on its value. If a lease was to reach zero, it would expire, with the property returning to the ownership of the freeholder. To avoid that, leases are usually extended when they reach a certain number of years remaining. 80 years is a significant threshold as that is when “marriage value” will also come into effect. If a property you’re buying has less than 90 years left on the lease, you should seek advice about extending it.
- Leases have certain covenants and restrictions in place to protect the owners, freeholder, residents and the building in general. These can include limitations on the type of flooring you can have or whether you are allowed pets. There can also be restrictions preventing you from operating a business at the premises. It is worthwhile for all buyers to ask about restrictions before committing to a purchase as you could find something to be a deal breaker and end up wasting both time and money.
- Ground rent is an annual fee paid by a leaseholder to a freeholder or head landlord for the use of land. Some leases allow for ground rent to increase significantly over time with a common arrangement being to double periodically. In some cases this can lead to unmanageable ground rent for the leaseholder and implications regarding the tenancy which include possible termination of the lease for non-payment. Ground rent has been a topic of concern over recent years with The Leasehold Reform (Ground Rent) Act 2022 taking steps to set future ground rents to a peppercorn which is effectively a zero monetary value.
- When major work is required to a building made up of leasehold properties, a Section 20 notice is issued by the freeholder or landlord, or on their behalf by a managing agent. The notice must provide information about the proposed works, the estimated costs, and how leaseholders can provide comments or nominate contractors for the work. Whether or not such a notice has been served will be disclosed during the purchase process but buyers should be aware that this could happen soon after the purchase completes and can be for a significant sum. This is just one of the reasons we would advise buyers to obtain a building survey and satisfy themselves as to the condition of the building.
