LEASEHOLD APARTMENTS

When purchasing an apartment, flat or maisonette, in England and Wales, the tenure, which is the form of registration, at Land Registry, will normally be Leasehold.
Leasehold means that you have the right to occupy the flat for a set period of time, (the residual amount of the existing Lease) but do not own the building itself, or the land it stands on, known as the Freehold.  You would also be contractually bound, to pay an annual Ground Rent and Service Charge.  In real terms, you have agreed to pay rent, (the purchase price) up front, for the right to occupy the flat, for the remaining years left on the Lease.  At the end of the Lease period, the flat reverts back to the Freeholder, unless you exercise certain rights. 
As a Leasee, you have rights under the Leasehold Reform Housing and Urban Development Act 1993, to extend  the Lease for an additional 90 years, for a capital sum to be paid to the Freeholder.  This can be an expensive exercise.  Under this Act and also the Commonhold and Leasehold Reform Act 2002, you and other Leasees in your block, having met certain qualifying criteria, have the right to communally purchase the Freehold Reversion, which is the preferred method, although the application process, can be lengthy.
You should think twice before buying an apartment with a Lease of less than 60 years remaining, as mortgage lenders are unlikely to lend, on such a short Lease.  Some Banks and Building Societies, have stricter requirements and will only lend on flats that have a minimum of 75 years unexpired on the Lease.  Always check with your Building Society or Bank, their criteria, before you commit to purchase an apartment. 
Other points to consider when purchasing a flat include:

  • Maintenance:  Ascertain if there are any planned maintenance expenditures, for the communal areas, such as  repainting the building, resurfacing car parks, or the renewal of the main roof.
  • Service Charge:  This is the amount that covers the day-to-day costs of the communal areas, such as the lifts, lighting and heating of the corridors and halls, possibly building insurance.
  • Ground Rent:  This is the annual amount payable to the Freeholder.  Check if the Lease has an upward renewal of the Ground Rent, every 33 years.  This can vary from Lease to Lease.
  • Restrictive Covenants:  There may be Restrictive Covenants, that prohibit or restrict renting, or having pets. 

 
The above points are normally checked by your solicitor, in the pre-contract enquiry stage of the legal process, but checking with the Estate Agent, in the early stages is more advisable.

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