What are you getting into when buying a leasehold?

When you’re buying a property in Chelmsford it can be easy to get wrapped up in the excitement of what it can offer you as a home that you may not have checked whether it is freehold or leasehold.  If you’ve not heard of these two terms before, at {name of agency} we want to help you understand the differences between these two forms of legal ownership.  So, what is a freehold, and what are you getting into when buying a leasehold?

Freehold

You will find a wealth of freehold properties in and around Chelmsford. The term freehold basically means that when you purchase the property you legally own not only your home but also the land that it sits on, making you the ‘freeholder’.  Most buyers prefer to purchase a freehold property and most houses tend to be such, although there are a wide variety of leaseholds, which is why you need to understand what a leasehold is and what you should be looking out for.

Leasehold

Let’s start with the basics. Although you’ll own your home, the land or building upon or within which it sits will be leased to you by the freeholder.  The leases tend to be long-term, normally around 90 or 120 years, but can be as high as 999 years.  You will have a contract with the freeholder which sets out your and their legal rights and responsibilities.  The freeholder of, say, an apartment building will be required to maintain the communal areas as well as the roof and the building’s exterior.

Although many people associated leaseholds with apartments, many new builds (as you may have read in the press) are being offered on a leasehold basis.  Not only that, there are a number of historical properties built by wealthy landowners that are leased.  These tend to have ground rents of a nominal amount each year, often under £20 in certain areas.  This is why you shouldn’t run away from a leasehold property in Chelmsford before you have all the facts.

What is the term?

As we have explained above, the lease term can vary, so before you even think about making an offer it’s essential you discover exactly how many years there are remaining on the lease.  We cannot stress how vital it is that you know this before you take steps to purchase any leasehold property.  Should the lease have less than 80 years left, it may impact on your chances of obtaining a mortgage for the property – not only that, when you come to sell, you will struggle.  This is why we would advise you to step away from any property that does not come with a lease of 90 years or more, unless you have an agreement in place with the freeholder to extend the lease as a condition of purchase.

Extending?

Extending the lease may seem like a simple solution but it’s often not so straightforward, and freeholders can determine the price you must pay for an extension, which might be way above what you’re expecting.  Because they can be slow and problematic, the government is looking into reforming the freehold purchasing and lease extension processes, but again this may take some time.  This is why it’s wise to have any agreements in place before purchasing, even though you have a legal right to extend the lease after owning your home for two years.

Additional charges

Is there a service charge?  Apartments and certain other types of properties may have service charges, used to pay for the upkeep of communal and shared areas such as hallways, stairs, gardens and the building as a whole.  In some more modern developments they will also go towards the additional facilities the building may offer, such as gym, pool, and other such amenities, which could be reasons you were attracted to the property.  There is no cap on what you can be charged, which is why it’s essential to budget for this additional cost before making an offer – the figure tends to be set by a management agent or a residents’ committee. Also check how the payment can be made, in many instances it’s an annual fee rather than monthly.

Another charge that you need to investigate is the ground rent.  There have been scandals with regard to soaring ground rents in recent years, especially on new builds.  As such, it’s essential that your conveyancer looks into any dodgy clauses that could result in large increases in charges in the years to come.  Do not commit to a property until you have all the information.

Ask

We never want to take away the enjoyment and excitement of buying a property in Chelmsford but the happiness can quickly turn sour if you’ve not got all the information.  At Charles David Casson we’re here to help, providing you with as much information as possible, and ensuring your conveyancer has everything they need so you can decide if this home you have fallen in love with is right for you on paper too.  If you would like advice on buying a property in Chelmsford please contact our team on 01245 835859.