I set out below 15 things you must look out for or take account of when buying a flat.
1 – Freehold or leasehold
If you’re buying a flat it will usually be sold as a ‘leasehold’. With a leasehold you get to own the property for the length of the lease. Houses are usually, but not always, sold on a ‘freehold’ basis, meaning you own the property forever and are free to pass it on to whoever you want in your will.
You can have ‘freehold flats’ but they are quite rare and if you come across one be sure to seek expert legal advice at an early stage and certainly before incurring the expense of a valuation
2 – The written lease
The most important thing to check when buying a lease is the written lease itself. Not only does it set out the length or ‘term’ of the lease, it sets out everything affecting the use and enjoyment of the property including the ground rent, insurance and service charge provisions.
Your lease may seem a long and daunting document to read, but it may have useful headings and sections and you should always read it the best you can. If you have any questions be sure to raise them with your solicitor or conveyancer. It is their job to check the lease to ensure that it provides a ‘marketable title’ and provides adequate security for your lender if you are buying with a mortgage. Check that your lawyer is a conveyancing expert and is experienced in dealing with leasehold property.
In the lease you may see words like ‘Leaseholder’, ‘Lessee’ and ‘Tenant’ – these are references to you, the flat owner. The person your flat will revert to when your lease comes to an end is referred to by terms such as ‘Freeholder’ Lessor’ and ‘Landlord’.
3 – Term of the lease
The term of the your lease is very important. Traditionally leases are granted for a term of 99 or 125 years – but terms can be any length and as long as 999 years. The longer the term, the better. 999 year leases are sometime referred to as ‘virtual freeholds’.
4 – How many years left to run
You should distinguish between the number of years the lease was originally granted for, and the number of years it has left to run. For instance, if the lease is for a term of 125 years from 1st January 2000 and you are buying in February 2018, that means 18 years of the term have expired, meaning there are 107 years left on the lease.
A key point for leases is when they start to reduce to the 80 years mark. Generally, leaseholders have a right to extend their lease by adding 90 years on top of the remaining term. However – because of rules known as ‘the marriage rules’ – the calculation of the amount payable by leaseholders changes when there is less than 80 years left on the lease, causing a sharp increase in the cost.
Therefore if you are buying a lease which is getting close to the 80 year mark, you need to factor in the likely costs, including legal and valuation fees, for extending the lease at a future date.
5 – Mortgageability and saleability
Another key point is when the lease gets to 70 years or below. Not only will it be more expensive to extend the lease, you may have difficulties re-mortgaging or selling the property. It varies with type and value of property, but many lenders will not be willing to lend on leases less than 70 years. Those willing to do so may charge premium interest rates.
Leases with relatively short terms are generally less marketable, harder to sell, and may be a poor purchase for certain buyers.
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6 – Ground rent
Check that any ground rent payable is reasonable and that any provision for increase is fair. Ground rents which double every 10-15 years or go up each year in line with inflation can put off potential buyers and in extreme cases could depress the value of your flat in the future.
7 – Service charges
Especially with new flats in large blocks, be extremely cautious in relation to service charges as they can easily add £150-£300 (or even more) to your monthly running costs for your flat. Your solicitor should ask for the last 3 service charge accounts at least, and you should check to see if there is a trend of rising charges and if there are any expensive works in the pipeline.
If there is a history of disputes in relation to service charges, this should also cause you to think twice before proceeding.
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8 – Covenants
Your duties or obligations in the lease, and those of your freeholder, are known as ‘covenants’. Consider in particular your covenants in terms of repairs, maintenance and insurance. The usual position is leaseholders are responsible for the decoration, maintenance and repair of the inside of their flats.
Freeholders are normally responsible for the common or communal areas, exteriors, doors, windows and roofs. Each lease will be different, so you must check the precise covenants which apply in relation to your specific lease.
Especially in the case of old period buildings, it is especially important check who is responsible for the foundations, roofs, windows and doors.
9 – Forfeiture
It is really important to comply with the covenants which apply to you in your lease. Failure to do so could lead to ‘forfeiture proceedings’ by your freeholder and, in exceptional circumstances, your lease could even be terminated.
10 – Let the buyer beware
The rule when buying a property is ‘caveat emptor’ – ‘let the buyer beware’. If there are any problems or issues with the state, condition or repair of the property they are likely to be your responsibility.
If you are buying the flat with a mortgage, the valuation report carried out is usually only for assessing the value of the property and is for the benefit your lender. It’s therefore advisable to consider obtaining a more detailed valuation report, if you want greater peace of mind.
The website of the Royal Institution of Chartered surveyors (RICS) lists 3 types of survey:
- Level 1 – RICS Home Condition Report
- Level 2 – RICS Home Buyer Report (with or without a valuation)
- Level 3 – RICS Building Survey
The RICS Building Survey is said to be suitable for larger or older properties, or where major works are planned.
11 – What exactly do you own?
It is especially important to check your lease to see what exactly you own. Don’t assume that you own something just because it looks like you do. That is particularly the case in relation to landings, stairs, gardens, patios, parking spaces, driveways, basements, roof terraces, roof spaces and roofs.
If you own something, that may not be as good as it seems – since you are likely to be solely responsible for its maintenance and repair.
12 – Shared facilities
Caution is necessary where there are shared facilities – such as driveways, footpaths, parking spaces and gardens. Be sure to find out who owns them, who is responsible for repairs and upkeep, and whether there is a history of disputes or problems.
13 – New flats
If you are buying a brand new flat and therefore without a service charge history, carry out due diligence checks on the managing agent to establish their management record in relation to other buildings they may run.
New flats should be in the best condition but often there are teething problems. These are things which should be picked up by the developer – but too often they are not.
Especially if you are not going to live in the flat, consider carrying out a snagging check. The NHBC has a handy snagging checklist on its website. If you are investor and live a long way from the property you may wish to instruct an agent to carry out the task for you.
If your new flat benefits from a lift, gym, swimming pool, bar, restaurant or the like, remember that they are likely to come at a cost in terms of the level of service charges – especially in older developments.
14 – Future plans
If you have any future plans for your flat in terms of building works, look to see what you can and cannot do under your lease. Check to see whose permission you will need, whether permission can be refused and what fees or charges may apply.
Similar matters to consider include:
Can you rent out or sub-let the flat? Can you let out the flat with Airbnb, or use it as a serviced apartment or holiday let? Can you use it as a HMO? These may not be matters which are especially important to you, but they could be important to potential buyers in the future.
15 – Missing freeholder
Sometimes the whereabouts of the freeholder is unknown. They cannot be traced. This can lead to problems with the management of the building where the freeholder is responsible for management. The freeholder can turn up at any time and demand back payment of ground rent for 6 years. Insurance may be an issue if the freeholder is responsible for insuring the building. If you want to extend your lease, the process will be more protracted and expensive.
Uncertainty and risks are therefore increased in missing freeholder situations. However, you can minimise the risks by taking out ‘a missing freeholder indemnity’ policy. You will pay a single premium, and the cost is usually quite reasonable.
Rebel Property Coach
My website is: www.rebelpropertycoach.com