The Ultimate Guide to Buying a Leasehold

With freehold house prices increasing in the UK, many buyers opt for buying a leasehold. For further information, see our guide Should I Buy a Flat or a House?.

It can be a daunting task purchasing a leasehold property without the full story, as there are differences between the two. This guide will walk you through the crucial information needed for buying a leasehold in the UK.

Freehold vs Leasehold: What's The Difference?

Understanding the differences between freehold and leasehold properties is essential before buying them, especially for first-time buyers. These are going to determine what you own, how long you can stay there, and more.

The Issues with a Short Lease

Lease terms are considered 'short leases' once they go below 80 years, making selling the property a challenge. Mortgage companies typically insist on 70 years left on the lease at the end of any mortgage term. Here’s why short leases are problematic:

• Significantly reduce the property's market value.
• Lease extension application required with certain criteria to be met.
• Leaseholders will pay a premium to the freeholder.

When purchasing a leasehold property, the purchaser should always request information about the current, remaining lease term.

Types of Leasehold Property

Most flats or apartments are leasehold properties, although a freehold might be converted into several leaseholds, such as a house converted into flats.

Read our guide on Questions to Ask When Viewing a Flat before your viewing.

A leasehold property will have communal areas, which are not owned by another leaseholder. These can be hallways and gardens. Leaseholders contribute to communal area maintenance via their service charges but responsibility for managing maintenance lies with the building manager.

Does Ground Rent Impact Buying a Leasehold?

Lessees must pay ground rent; it may not be a flat fee but instead ‘staircased’. Meaning the amount due increases over time. For more information on ground rent increases, see our guide.

Under the Leasehold Reform (Ground Rent) Act 2022, ground rent is reduced to peppercorn ground rent on extension of the lease. If you can't extend the lease and the ground rent is high, you may wish to reconsider the purchase.

High ground rents increase your monthly outgoings and can reduce the property value and your ability to resell.

How Does Service Charge Work?

Service charges are payments for property maintenance. These are made to a managing agent, council, or the freeholder if they self-manage the freehold. This covers:

• Lighting, walkways, and roof servicing
• Lift maintenance
• Estate staff
• Cleaning communal areas
• Gardening
• Building Insurance

Leaseholder Seller Information Pack

It’s the seller’s responsibility to supply the leasehold information pack, which will include:

• Service Charges
• Ground Rent
• Three years of management company accounts
• Planned Major Works
• Overdue service charge or ground rent
• Other information about the leasehold

The management information can take weeks to come through, so request it as early as possible. Your solicitor may have additional enquiries. Pack costs vary from £300 to around £500, depending on the management company.

What are Major Works?

Major works are a separate, one-off project for maintaining property and community areas. Thus, you must find out about any planned works, usually that will mean there's a current 'section 20 notice' on the property. Buying a flat with a section 20 notice could mean you'll have extra costs after purchase without financing in place.

Our conveyancer will check that an adequate reserve fund exists to cover the planned work. If not, the solicitor can help to renegotiate your purchase price. If the cost of major works is uncertain, your solicitor may recommend a contingency called a "retention".

Everything To Know About Retention

A retention is a portion of the purchase money retained on purchase completion by the seller's solicitor for some time, for example, planned major works. Here’s how buyers and sellers are affected:

Many conveyancing solicitors prefer to settle based on a pre-agreed projected allowance. This is a deduction from the full purchase price, considering future liability the seller may owe.

If you are unsure, speak to your conveyancing solicitor or contact us on 0333 344 3234.

Buying a Leasehold Checklist

• Check remaining years left on lease. Ensure extension is agreed if less than 85 years.
• How much is the service charge and ground rent, and when is it paid?
• Request the Leasehold Information Pack
• Ensure ground rent and service charges are allocated to prevent leasehold registration delays.
• Are there planned major works?
• Agree retention for future liability for major works, service charge, or ground rent.
• Is a parking space included?
• If you have pets, check they are permitted on the lease
• Is your Freeholder absent? An absentee freeholder can devalue the leasehold, causing additional complications.
• You don't need building insurance as this should be arranged by the freeholder, but you may wish to get contents insurance.