10 Worst Mistakes Flat Buyers Make

Learn about the 10 worst mistakes flat buyers make – including thinking that their home is a castle.

The legal title flat buyers usually obtain is a leasehold title. It is not as strong or as wide-ranging as the freehold title house buyers usually obtain.

If you own a house with freehold title in England & Wales, you can very much think of it as a castle – such is the strength of the ownership rights you have.  In contrast, if you own a flat, you will typically have fewer and weaker ownership rights.

Probably the 10 worst mistakes you can make as a flat buyer are:

1. Thinking that your leasehold legal title is as good as a freehold title
2. Not understanding that you are effectively a tenant under the law
3. Not knowing that you must pay an annual ground rent
4. Not appreciating that you have to pay a service or maintenance charge
5. Not knowing about the need to comply with covenants and restrictions in the lease
6. Not being aware of the obligation to comply with regulations in the lease
7. Not knowing about the restrictions affecting how you can deal with your apartment
8. Not taking into consideration issues that could arise with neighbouring flat owners
9.  Not realising the lessor’s rights to terminate the lease and evict you
10. Not seeking professional advice when there is an issue or problem

SETTING THE SCENE

You are looking forward to buy your first flat.

No more parents, no more renting, no more flat sharing!

You have heard the phrase “an English man’s home is his castle”  and you are about to get your very own castle – your own home…

Somewhere you can do what you like, when you like, how you like.

But wait a minute…that is only correct if you are buying a house.

If you are buying a flat or apartment, it is another story.

Typically, when buying a flat your ownership rights are not as extensive as when buying a house. Normally when you buy a house you will get a freehold title. When you buy  a flat you will get a leasehold title, which does not have as many rights and benefits as a freehold title.

You will not be able to do exactly what you like in or with your flat. You are going to be subject to the covenants, restrictions and regulations set out in your lease.

1. Thinking that your leasehold legal title is as good as a freehold title

When you buy a flat you will usually get a leasehold title, not a freehold title. The owner of a freehold title is entitled to occupy their property forever…with very few restrictions as to how they (and their legal successors) can use and enjoy the property.

Your leasehold title is typically created out of a freehold title by a “lessor”, with you being the “lessee” or “leaseholder”.

Your leasehold title is inferior to the title from which your lease has been created.

As a leaseholder, you and your successors are not entitled to occupy the flat forever…only for the term set out in your lease, typically 99 or 125 years.

— covenants —

You will be bound by the covenants – the obligations and duties – set out in the lease which govern your occupation of the flat.

You will be obliged to pay an annual ground rent and probably a service charge for maintenance of the communal areas of the building or block in which your flat is situated.

The value of your flat can fall with time as the length of your lease reduces, shortening the time you and your successors can live there.

However, there are some leasehold titles which are not a million miles away from a freehold title, notably:

  • When you get a 999 year lease, known as a “virtual freehold”
  • When you along with the other flat owners own a share of the freehold title from which your lease has been created.

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2. Not understanding that you are effectively a tenant under the law

Strange as it may seem, as a leaseholder you are in legal terms very similar to a tenant. You are very much in the same area of law – landlord and tenant.

Your lessor is effectively your landlord.

The obvious difference is the length of your occupation. With a typical tenancy in the private sector, you are granted a tenancy for a relatively short period – 6 months to 3 years normally.

A lease is usually granted for at least 99 years.

3. Not knowing that you must pay an annual ground rent

Emphasising your role as a tenant, you need to pay a ground rent to your lessor – a rent for the ground on which your flat is built.

The payment is usually due annually or half yearly.

It is a relatively small sum, usually no more than a few hundred pounds, but failing to pay it can ultimately lead to the termination or forfeiture of your lease and the loss of your apartment.

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4. Not appreciating that you have to pay a service or maintenance charge

As well as a ground rent, you may also need to pay a service or maintenance charge to cover things like building insurance and the maintenance, decoration, cleaning, lighting and repair of the communal or external areas.

Your proportion of the total service charge bill will be calculated according to the size or square footage of your flat and payment is normally made monthly, half yearly or annually in advance.

Building insurance is often included in service charges.  It is not uncommon in new  or newish developments for charges to exceed £100 per month. In “luxury” city centre developments, the monthly total can be a great deal more than £100.

Just like with ground rent, failure to pay service or maintenance charges can lead to the loss of your flat.

5. Not knowing about the need to comply with covenants and restrictions in the lease

Your lease will contain covenants (legally binding promises) and restrictions – and you must comply with them.

Your covenants may commit you to obligations relating to things such as repairs, maintenance and even decorations.

Normally you cannot carry out any building, conversion, change of use or development without the permission of the lessor. You will often have to pay for their costs incurred in engaging a surveyor or architect to consider and approve your plans and drawings.

Other common restrictions may mean you cannot let part of the property, or allow it to be occupied by more than one family unit, or let it for short periods. Such restrictions may stop you from using your flat as serviced accommodation or a holiday let via agencies such as Airbnb.

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6. Not being aware of the obligation to comply with regulations in the lease

As well as covenants and restrictions, your lease is likely to contain “regulations” or rules which govern the use of your flat.

Regulations typically control or restrict things like:

– Operating a business from the flat
– The number of people who can live there
– Noise and sound during certain hours
– Keeping of pets
– Floor coverings
– External decorations
– Dealing with waste or rubbish.

Failure to comply with regulations may entitle the lessor or their agents to take proceedings against you and, in extreme circumstances, evict you.

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7. Not knowing about the restrictions affecting how you can deal with your apartment

You face many limitations, impositions and restrictions as a flat owner.

When you have a freehold title, subject to planning permission and building regulations, you are more or less free to do what you like with your property.

That is not the case with a flat where impositions on you include: ground rent, service charges, covenants, restrictions and regulations.

You must comply with these obligations or run the risk of losing your home.

8. Not taking into consideration issues that could arise with neighbouring flat owners

A big drawback with any flat is its close proximity to neighbouring properties. You may be lucky to own one of just two flats in a detached house, but you could own a flat in a huge modern block with flats above and below you, and on all sides.

This proximity can lead to problems with noise and anti-social behaviour.

A common problem is that some blocks have a mixture of owner-occupiers and tenants. Some tenants, not having a long term stake in their living accommodation or simply just anti-social, can make life hell for others.

As a flat owner, you can’t just sell up and go at the drop of a hat. If the problem is very bad, the value of your flat may even be adversely affected.

9. Not realising the lessor’s rights to terminate the lease and evict you

It comes as a big surprise to many flat owners – particularly if they have paid a few hundred thousand pounds for their apartment – when they realise that they are essentially a tenant and their lessor is essentially their landlord.

In the feudal and archaic landlord and tenant relationship, a tenant can ultimately be evicted if they fail to comply with the many duties and obligations set out in their lease.

A flat owner can have their lease terminated for breach of any major covenant, but issues usually arise around ground rent and service charges.

The ground rent is usually no more than a few hundred pounds a year, so payment is not normally an issue for most flat owners.

The likely problem is service charges, which in big, service-heavy developments can run to a few thousand pounds a year. Difficulties typically  arise when there is a big spike in service charges on account of  major works being required, such as a new roof or a replacement lift.

— forfeiture of lease —

Your lease can be terminated or forfeited via court proceeding if you do not pay ground rent, service charges or other sums due under your lease. In the last resort, you can be evicted, lose your home and incur substantial legal costs.

If you are having difficulties paying service charges, it is good practice to explain your difficulties to the freeholder or managing agent and try to reach an arrangement for payment by instalments.

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10. Not seeking professional advice whenever there is an issue or problem

Because there are so many moving parts in owning a flat, and because there are so many serious problems which can arise, it is very important to be proactive in the event of any problem or issue.

It is best policy to seek expert or legal advice promptly in all cases, even those considered minor.

That is especially so with service charges where you consider them to be excessive or unfair, or you cannot reach an arrangement for clearing arrears.

Lessors and management companies have considerable powers and ignoring issues or problems will only make things worse and weaken your position or limit your options.

Conclusion

Your flat is certainly not a castle – but it can be a great home all the same.

Never forget that your rights and powers are not as extensive as a house owner with a freehold title.

Be aware of the terms and conditions of your lease – comply with them at all times. Promptly seek expert advice whenever a problem arises.

Have you bought a flat and experienced some of the issues and problems mentioned in this blog? How did you deal with them and with what degree of success or failure? Please leave your comments or observations below.

You may also find the following blogs useful:

Top 5 tips for first time homeowners the world over (essential general information)
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Beware of developers bearing gifts (why not all incentives are a giveaway)

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Dalton Barrett
Rebel Property Coach

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