10 Questions to Ask Before Buying a Leasehold Flat in Newington Green
If you are buying a flat or apartment in Newington Green, the chances are you will be purchasing the leasehold. A leasehold gives the purchaser the right to occupy the property for the period specified in the lease.
Buying a leasehold can be tricky; here are ten questions to ask before you make an offer.
1. How long is left on the lease?
When you buy a leasehold flat, you must determine how many years remain the lease. The lease term is important because it can be difficult to get a mortgage on a property with a short lease, and the cost of extending the lease can increase considerably if the term drops below 80 years.
When you buy a leasehold apartment, you purchase the right to possess the property for the remainder of the lease period. When first drawn up, leases can run from anything between 99 and 999 years. As time goes on, the lease period reduces. When the leasehold term reaches zero years, the property ownership reverts to the freeholder.
The value of properties with short leases rapidly decreases. A residential lease with less than 80 years left to run constitutes a short lease. Mortgage lenders tend to require at least 90 years left to run so that there is time to extend the lease.
If you are considering a leasehold property with less than 99 years remaining on the lease, you should consider extending it.
At the moment, leaseholders have a legal right to extend their lease but only after living in the property for two years. You can ask the seller to start the formal lease extension process and continue it yourself after purchasing the property. The costs of extending a lease are high and comprise the premium payable to the freeholder, legal expenses and taxes. If the lease has less than 80 years to run, the price is even higher as the leaseholder must pay the ‘marriage value’. The marriage value is the increase in the value of the apartment resulting from the lease extension.
New government reforms have been proposed, but are not yet law, to make extending leases easier and cheaper for leaseholders. The proposals include:
Giving leaseholders the right to extend their lease to 990 years with zero ground rent
Setting calculation rates for extending a lease to ensure prices are fairer, cheaper and more transparent
Abolishing prohibitive costs like ‘marriage value’
2. How much is the ground rent?
Ground rent is traditionally a token fee paid to the freeholder in exchange for renting the land the property sits on. If you are required to pay ground rent, this will be detailed in the lease.
3. Will the ground rent change?
Ground rent can increase over time, for instance, rising every ten years in line with the Retail Price Index (RPI). Increases in ground rent must specified in the leasehold document, so make sure you look at this carefully.
4. How much is the service charge, and what is included?
Most leaseholders will pay service charges to the freeholder or company responsible for managing the property. This covers all the activities needed to maintain the building, including building insurance, maintenance and repairs, provision of leisure facilities, concierge services, or additional security.
Service charge could be anything between a few hundred pounds and thousands of pounds per year for luxury apartment blocks. Ensure you understand when and how to pay the service charge and precisely what it covers.
5. What restrictions and consents are there in the lease?
Make sure you find any restrictions or consents stipulated in the lease. For instance, pets may not be allowed, or you may need permission to undertake home improvements or to run a business from your property.
6. Have any alterations been made to the property?
Try to determine if the seller or any previous owners have made alterations to the property and ensure that the proper consents exist. Otherwise, you could be forced to pay the costs of obtaining the property consents from the freeholder.
7. Is there a sinking fund?
Check that part of the service charge goes into a reserve or sinking fund. Sinking funds are helpful because they cover the cost of expensive maintenance work such as replacing the roof or re-decorating the exterior and communal areas.
8. Is any major work scheduled?
Find out if any significant work is planned and whether the sinking fund already covers the costs. Otherwise, you may find you become liable as the costs would be shared between the leaseholders and would add a premium to your service charge.
9. Who are the managing agents?
Find out as much as you can about the managing agents as it is their job to make sure the property, facilities and communal areas are kept in good repair. Try to find out their reputation either by internet searches or by asking other residents in the building.
10. How many of the leaseholders are in arrears?
If many leaseholders are in arrears, the standards of service you receive may deteriorate. You should also check any arrears owed by your seller as they will become your responsibility following completion.
For more information about leasehold property for sale in and around Newington Green contact M&M Property today.