When purchasing a leasehold property, there are more costs that you will need to consider than if you were purchasing a freehold property. It is important that you carefully look at these costs as they can amount to large sums of money that you may not be initially aware of, and they may need to be paid in full at short notice.
Ground rent is a payment usually paid annually by owners of residential long leases to their landlord. It has been abolished on new leases in England and Wales from 30 June 2022. However, where leases are already in existence, rent will continue to be payable.
Ground rent may also increase in accordance with a recognisable and published formula such as the retail prices index. This will be stated in the lease so it is important to check this as in extreme cases you could see your ground rent double repeatedly over the time you own the property.
A service charge is payable by the leaseholder to the landlord for any services that the landlord is obliged to provide under the terms of the lease. This will usually include maintenance and repair, improvements to the exterior or common areas, as well as building insurance and the cost of the management.
The amount payable can vary each year depending on the costs the landlord incurs.
Reserve or Sinking Fund
Some leases allow for the landlord to collect extra money from leasehold owners every year that will go towards large but infrequent projects such as replacing a lift or roof.
There has been particular focus on cladding of leasehold properties since the Grenfell Tower tragedy. In some cases, the lease may allow for the landlord to recover the cost of replacement cladding through the service charge. This may result in affected leaseholders facing an average cost of £9,000. However, some leases may include a remediation plan where the landlord pays for the works or the cost is discounted.
Leaseholders are restricted with how they can use their homes with consent required for certain activities, such as structural alterations or keeping pets. Requesting consent for these can be time consuming and stressful, and you will need to pay for them to deal with your application.
How Can I Protect Myself From These Costs?
Although leasehold properties may have more ongoing costs that purchasing a freehold property, they can be a good way of getting onto the property ladder and ensuring the regulated use of shared facilities.
Spire Solicitors LLP Residential Conveyancing Team can support you every step of the way when purchasing a Leasehold Property. They will ensure you are aware of all potential costs, preventing any unpleasant surprises in the future meaning you can buy your property with confidence.
If you would like to discuss any points in this article further or are looking for legal advice relating to purchasing a leasehold property, please contact Spire Solicitors LLP on 01603 677077.