What are the added costs involved in buying a leasehold property and how might this dent your profits?
As a leaseholder you will have to pay the owner of the freehold an annual ground rent. This is in effect a rent in return for allowing the property to stand on the freeholder’s land. You should find out exactly how much this will be if you plan to sublet the property and work out how much this will impact on rental income.
The lease should tell you whether this ground rent is fixed, or is reviewed after a certain period. If you are buying a lease shortly before that review is allowed to take place, watch out as the freeholder may increase the ground rent substantially.
The freeholder is responsible for the maintenance and upkeep of the building. For this service they will expect you to pay additional service charges for which they should arrange buildings insurance, cleaning and general maintenance.
The cost of work, such as redecoration of communal areas or roof repairs will usually be split between the leaseholders living in the building. Though this isn’t always this case and you should check.
The lease itself will be hard to read unless you have a legal brain. So it’s essential that your solicitor checks it over before you buy the property. Find a solicitor at the Law Society.
Leases fall into two parts:
The first part identifies the parties to the lease – the freeholder and yourself, the leaseholder – and the premises to which it applies. It states the starting date of the lease, the length of time it has to run and the price which has been paid for the property.
Nicholas Leeming, director of property website www.propertyfinder.com says that the terms of the lease and whether you have the right to buy the freehold at the end of the lease are crucial to realising full value on sale.
The remaining part of the lease deals with the covenants which detail the legal obligations of the freeholder and the leaseholder. These covenants will impact on what you as a property developer can do:
* they will influence what building work, if any, you as a property developer can undertake. And it may take months to receive permission/have permission denied
* you may not be able to sublet the building; if you are able to sublet, you will have to meet appropriate standards.
Anthony Essien adds: 'It’s vital you find out everything about the lease at the viewing stage. You should always know what you’re getting yourself into before you buy.'
Buying & Selling - essential guides and advice
The Leasehold Advisory Service gives free advice on all leasehold issues.
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