In the UK, home ownership is on either a freehold or leasehold basis. The former means the buyer is the outright owner of the building and the lot where it stands. Meanwhile, the latter means you have permission from the freeholder to use the property.
Leasehold ownership lasts for at least 90 years and can run for up to 999 years. However, this is not all there is to know about conveyancing this kind of property. Here are other things you should know about purchasing on a leasehold basis.
Is There a Different Process for Buying Leaseholds?
Conveyancing solicitors have a little more work to do if they buy a leasehold property for their clients. Besides the routine procedures involved in a purchase, they will need to look through the lease, deal with the landlord, the management company, and the vendor’s solicitor.
Flats are more likely to be leaseholds, so if you’re purchasing one, check the marketing materials—the property’s tenure should be there. Your solicitor should also confirm the position early on.
At present, the House of Lords is undergoing legislative processes for the Leasehold Reform (Ground Rent) Bill, which aims to make extending a lease “easier, faster, fairer, and cheaper,” among others. Consult your conveyancing solicitor for more updated information on this matter.
What is a Lease?
If your solicitor or conveyancer has received the memorandum of sale, they will ask for a copy of the lease. This document is the contract between you and the freeholder or landlord. It details your rights and obligations—some of your responsibilities as lessee include:
Rent and service charges: As the tenant, you could be required to cover ground rent and service charges for things like roof repairs, management company fees, and more.
Contributions for future work: You might also have to donate to a sinking fund for planned improvements to communal areas or the structure itself, especially if you are leasing a flat.
Administrative costs: If you want the freeholder’s consent to alterations you’ll make or provide replies to enquiries, you might also be asked to pay a fee. Administration charges also cover maintaining and operating central heating, lifts, lighting, and the like. The landlord might also include a portion of the salary of porters, guards, and other employees tasked to maintain the building.
Besides your responsibilities, the lease will also outline the freeholder’s, things like building maintenance, insurance, and the like.
Enquiries the Solicitor Must Make
Besides knowing what you are responsible for and what you must pay, the conveyancing solicitor enquires about several things. Here are questions he will ask:
Who is the freehold owner? Flats in apartment blocks have individual leases, and communal areas like hallways, gardens, and stairs are the landlord’s responsibility. You need to know who the freehold owner is in case there are issues with these spaces.
How long is the lease? Shorter leases cost more to extend. If you are buying a property with a lease of under 90 years, factor into the purchase cost how much you need for a lease extension.
Are there upcoming major works? Renovations and repairs could affect your home’s sale value, your enjoyment, or the service charge you have to pay every month. The solicitor will ask for details on these as well. Section 20 of the Landlord and Tenant Act 1985 has more information on the rights and responsibilities of freeholders and tenants.
What can a tenant use? You must know your leasehold’s boundaries, and your solicitor should inform you of these before the sale’s close. For example, if you’re buying a ground floor flat directly above a cellar, you should know if you have rights to the sublevel space or just the flat.
What restrictions are there? Besides the boundaries of your lease, you should also know the restrictions on your property. Are renovations and remodelling allowed? To what extent? The solicitor would usually ask these during the conveyancing.
Is Leasehold Conveyancing Expensive?
Typically, leaseholds are more expensive to process than freeholds because the solicitor needs to accomplish additional checks and enquiries. Besides the conveyancing cost, you have to pay for the Leasehold Management Pack, which costs approximately £300 to £800 and contains information on service charges and more.
You also have to pay for the Notice of Transfer, also known as the Notice of Assignment. Some management firms could charge up to £300 for this. If you’re buying in addition to a mortgage, the landlord also needs to send a Notice of Charge to the lender, which will be an additional £50 to £200.
Does it Take Long to Conveyance a Leasehold?
Besides costing more, leaseholds also tend to take longer to transfer. Since there are more people involved in the transfer, the solicitor has more to coordinate. He has to wait for the landlord to respond to enquiries.
The extra fees you have to pay also delays the process. When the solicitor asks you for money, waits to receive it, sends it to the management firm, and waits for the sum to clear, you are looking at several days’ worth of back-and-forth processing at least.
Leasehold purchases could take eight to ten weeks to complete. That is, if everything goes smoothly—many things could make the wait even longer. A chain-free sale takes three months at most, but if there are complications to the sale, you are looking at a delay of at least six months.
Would I need Leasehold Indemnity?
An indemnity policy is a type of protection covering the implications of third parties against defects on the property a lessee is purchasing. For example, if your seller will not provide a building regulation certificate, your solicitor might propose that you take an indemnity policy to cover possible regulation-related claims.
Most indemnity policies cover costly, time-consuming legal defects. These might not matter at the moment, but they can become a nuisance to handle in the future. Instead of fixing these yourself, it is better to get leasehold indemnity to protect against unwanted bills in the future. Your conveyancing solicitor should know what type of policy you need.
Buying a leasehold property involves more processes than freehold ones. If you’re interested in purchasing a flat from a landlord, you need a conveyancing solicitor with experience in this kind of sale. Finding the best one to work with is easy once you’ve researched the work of several legal professionals in your area.
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