Buying a leasehold property can come at a cost. We speak to Prosper Marr-Johnson,Partner at Marr-Johnson and Stevens LLP for some expert advice.
A leasehold property means that you do not own the land the property is built on, you own the property but only for the length of time remaining on the lease. If your property has a lease of under 85 years you could see its value deplete, even if the price of property in your area is rising. Properties with shorter leases can also be harder to secure a mortgage on. A lease with approximately 130+ years unexpired is worth about 99% of its value. Therefore a statutory lease extension (a 90 year extension added to an existing unexpired lease term) is a good way to achieve near maximum value.
Owning a leasehold property comes with additional costs that should be factored in when purchasing. Service charges, maintenance charges, ground rent, buildings insurance and major works funds can all add to the outgoings associated with owning your home and you must also check that you can do renovation works once you own the lease, as some freeholders prevent this. When considering a leasehold property pay attention to the amount of ground rent and in particular the rent review clauses (if any), a doubling ground rent every 25 years is the equivalent to a compound RPI growth but shorter review patterns are far more punitive. A statutory lease extension automatically reduces the ground rent to a peppercorn, as the capital value forms part of the premium.
If you have owned your property for more than two years and it was originally leased on a 'long lease' (normally over 21 years) you are legally entitled to extend your lease by 90 years and this will be in addition to your unexpired remaining years, however this can prove expensive. Another option to consider if you've fallen for a property with a short lease is to get the seller to serve the relevant notice for a lease extension between exchange and completion and then assign the benefit over to the buyer. The buyer should not overpay for the lease as this will not make the cost of the lease extension cheaper! If you are not mortgage dependent, then buying a shorter lease followed by a lease extension can reduce the overall SDLT. This particularly applies to higher value properties. There are opportunities for a lower purchase price where there is a short lease and this should apply in the current weaker market.
Questions to ask when considering a leasehold property
- - What's the remaining length on the lease?
- - What is included in the service charge (ask for a summary showing how the charge is worked out and what it's spent on)?
- - Is there a sinking fund and are any major works planned?
- - Is the vendor up to date on all payments?
- - What are the ground rent implications in the future?
- - Check what restrictions there are in the lease about home improvements, pets living in the property etc to ensure you don't get any nasty surprises.
Interested in investing in a leasehold property? We've rounded up a selection of some of our leasehold properties currently on the market in our area...
Avonmore Road, West Kensington, W14
A substantial three bedroom, two bathroom maisonette arranged over the upper floors of a red brick Victorian house.
Lakeside Road, Brook Green, W14
A superb two bedroom flat with private garden on the lower ground floor of a mid-terrace Victorian house.
Edith Road, West Kensington, W14
A fantastic two bedroom flat on the raised ground floor of an end of terrace Victorian house. with the additional benefit of a private garden.
If you're considering a leasehold property and require some advice please do not hesitate to get in touch with the team at Marr-Johnson & Stevens LLP.
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