What to consider when buying a leasehold property

50% of all property in London is leasehold and the majority of annual buyer transactions involve a leasehold deal. So, for a large percentage of homebuyers – especially first time buyers – dealing with the details of leasehold is going to be essential. A leasehold property is very different to a freehold property and it’s crucial for any buyer to appreciate this before making an offer.

What is leasehold?

It means that you own the property but only for the period of time stated in the lease – after which it reverts to the freeholder. You do not own the land on which the property sits and if the property is only one part of a building (e.g. an apartment) then you won’t own the building structure either. This is in contrast to a freehold property where you are buying everything – and are then responsible for everything –, from the building structure to the land that it is built on.

Considerations with a leasehold property

How long is the lease?

A lease over 130 years is worth about 99% of its value. Once the length of the lease drops below around 85 years then this can affect what the property is worth. Length of lease can always be increased via negotiation with the freeholder but there may be a charge for this.

What restrictions does the lease contain?

Although a freehold purchase makes you a home owner this is subject to the terms of the lease, which may be similar to what you experienced as a renting tenant. So, for example, the lease may place restrictions on whether or not you can have pets. There might be limits on the type of renovation or building works that you can do to the property without the freeholder’s permission, as well as certain maintenance obligations e.g. with respect to the garden.

What costs are involved?

You are highly likely to have to pay a service charge for a leasehold property. This is received by the freeholder who will use it to cover the cost of various expenses, such as maintenance and cleaning of the building. It’s important to identify these costs up front, as they are payable annually and may have a substantial impact on your budget.

How much ground rent is there to pay and will this increase?

The lease will require the payment of a ground rent to the owner of the land on which the property sits (the freeholder). This is usually a fairly nominal figure but the lease may contain a rent review provision that means it could escalate fairly swiftly. It’s important to be aware of how much rent you’ll have to pay once you purchase the property and what that figure will be if you’re still living there in five or 10 years.

What’s the current financial situation?

The key information to look for here is whether the property has a sinking fund (i.e. cash set aside for major improvements or repairs) and whether the current owner is up to date with all the payments due.

Leasehold property can be a great investment as long as you’re fully aware of all the implications of this type of purchase.

Get in touch with Clarke Gammon Wellers with all your property questions today, or take a look at our Property Search tool to find properties in Surrey to buy or rent.