Buying a Leasehold Property – Potential Costs & Issues
The terms freehold and leasehold refer to the type of ownership that applies to a property when buying in England or Wales. Houses are, most commonly freehold, however, leasehold ownership may apply to some houses (for example, shared-ownership) and other residential residences (flats etc). It is important to understand the differences between the two types of ownership and the potential pitfalls of purchasing a leasehold property.
The difference between Leasehold and Freehold Properties
Leasehold – when you purchase a leasehold property you own the building that you purchased. However, the land which the building is built on is still owned by a landlord (the leaseholder). You will have to pay ground rent and possibly maintenance service charges as part of the leasehold agreement. When purchasing a Leasehold Property is important to bear these additional costs in mind when budgeting.
Freehold – A purchase of a freehold property entitles you to the ownership of the building and the land on which it is built.
The Costs of Buying a Leasehold Property
Many of the additional costs associated with buying a leasehold property are hidden within the small print of the contract you receive when purchasing. It is important to inspect the contract thoroughly and ask questions regarding these additional costs and ground rent or service charges that may apply. It is important to find a reputable, reliable conveyancing solicitor who has the required experience in order to spot these, potentially hidden costs and highlight them to you. Our conveyancing calculator allows you to compare conveyancing quotes from a range of highly experienced professional solicitors allowing you to make an informed choice.
Possible Charges on Leasehold Property
Notice of Assignment
Unfortunately, it is not just ground rent and, possibly, service charges, that may apply as additional costs to your leasehold property. There is the possibility that your conveyancing solicitor may have to give a Notice of Assignment to the owner of the land on which your property is built. Usually costing around £100 + VAT, a Notice of Assignment is in place to inform the landlord that you are the new lessee.
Notice of Charge
It is likely that you are using a mortgage to complete the purchase of the property. If this is the case then a Notice of Charge is also a required step in the process. The costs for this vary from £50 to £200 pounds and is essentially in place to tell the landlord that there is interest in the property from a Third Party (your mortgage lender).
Deed of Covenant
A Deed of Covenant is not always applicable and is usually requested by the freeholder or management company. If this is required it will be included in the landlord’s pack provided to your solicitor. The Deed of Covenant is, basically, a contract stipulating that you are happy to pay the service charges applicable for your property. The cost of this can get into hundreds of pounds (£300 +).
Becoming a Shareholder
This potential cost is slightly more complicated. Normally associated when the property being purchased is a flat, the lease is shared amongst all of the owners of the properties in the building. This is known as commonhold. A minimal fee may be payable in order to become a shareholder in whatever organisation runs the management of the building.
Unexpected Leasehold Expenses
Once you have bought the property there may be other unexpected expenses that you should keep in mind before purchasing. For example, if living in a commonhold or a communal property there may be the possibility that there is a communal fund that is run in case of emergencies such as fire or flood damage to the building. It is advisable to check if this is the case before purchasing, as these costs can get into the many hundreds, and sometimes thousands, of pounds.
A retirement property can also come with their own set of additional costs including monthly management fees and occasionally even an acceptance fee. Transfer fees may also be due in order to transfer ownership of the remaining lease however these are becoming less common.
Length of Lease Remaining
It is also important to take note of the length of the lease that is remaining on the property. Your ground rent costs are fixed for the remaining length of the lease. However, service charges and some other costs can go up or down depending on the work that is necessary. If the lease of the property is short you should also consider the costs associated with extending the length of the lease. Extending the lease can improve the properties value but costs of doing so can vary.
All of the conveyancing solicitors that are part of the Conveyancing Network have the necessary experience to guide you through the purchase of a leasehold property.