Leasehold Properties – Are they worth the aggravation?

Leasehold Properties – Are they worth the aggravation?

 

You may remember in our article about the governments housing white paper, that the government is going to review current legislation on leaseholds, and in particular a recent trend of selling the freehold for profit after the properties have been sold.

 

In advance of this review, I wanted to provide some advice and what to look for when considering purchasing a leasehold property to live in, or as a buy to let property.

 

Years Remaining on the Lease

Agents are required to provide this information when marketing a property that is Leasehold. The length of lease can vary dramatically, but from new, this may be anywhere from 99 years to 999 years depending on the property. The length of lease remaining, will have a significant impact on the re-sale value of the property so factor this in. If the lease has less than 100 years remaining, find out how much the freeholder will charge you to increase the length of the lease. This can cost in excess of £20,000 to extend in Basingstoke for example, so should be factored into any offer you make.

 

The Amount of Ground Rent Payable

This is usually the smallest charge you will incur, and will usually be around £150 to £250 per year. Your conveyancer should ask for a copy of the most recent charge made.

 

The Annual Service Charge

The service charge can be substantial, and in Basingstoke range anywhere from £1,000 per year to £2,500 per year. The amount charged is based on the amount spent by the lease administrator on items such as insurance, building maintenance, lift maintenance, communal gardens are so on. As it is based on the amount of money spent by the administrator, this can see significant increases.

 

If you are purchasing a brand new property, don’t be fooled by claims that service charges will be less than £1,000. If the property has a lift, communal gardens or car parking, this will increase as the properties are sold, so always budget for this to be at least £1,500.

Again, your conveyancer should ask for a copy of the most recent charge made.

 

It is important, when buying a leasehold property, to ensure that all payments of ground rent, service and administration charges will be up to date when you complete on your purchase.

 

Also, be aware that leaseholds can incur exceptional charges which can be charged for in addition to your normal service charge. This could be for expensive works such as roof repairs or repainting the building for example. Most lease administrators will try to mitigate against this by holding a “Fund Reserve”, but this is not always sufficient for larger items.

 

When viewing a property, most competent agents will provide the lease length, ground rent and service charge details on their property details. If not, ask them to provide this before you view the property.

 

Consents

Check the lease for any restrictions that the lease administrator may impose. These include permission to rent the property, permission for pets, installing laminate flooring and so on. As an example, First Port who administer Skyline Plaza in Basingstoke, impose a charge of £120 for consent to rent a property for each tenancy.

 

Last by not least, your conveyancer should obtain details of any other event-related fees and charges under the lease that are triggered by certain circumstances or events.

 

What to do if you are unhappy with your Lease Administrator or their charges

If your lease administrator is a member of RICS or ARMA, they will have a code of practice and a complaints procedure they are required to follow. If you are unable to resolve your issue directly with the Lease Administrator, ask for a copy of their complaints procedure. For most reputable companies, this will involve contacting the Ombudsman Service: Property. They will then be able to examine your complaint independently.

 

If they are not members of RICS or ARMA, you can apply to the First-tier Tribunal (Property Chamber). All you need do is to download and complete the form ‘Leasehold 1’ from the gov.uk website http://hmctsformfinder.justice.gov.uk and send it with the required fee to the Tribunal.

 

Martin & Co Comment

Our view is that despite some of the costs and pitfalls involved with Leasehold properties, they can certainly be good investments and return good rental yields. Our advice when choosing a property would be to look for the following:

 

·        Ideally town centre location, or walking distance to the town centre and train station

·        Ensure the property has parking. Many of the properties coming to the market in Basingstoke offer parking, but at an additional cost. We think that parking is a must.

·         Avoid the lower levels if you plan to rent the property. The higher floors offer better views and tend to be quieter. Obviously, this assumes the building has lift access.

·         If you are purchasing a house (rather than an apartment) as a leasehold property, be very cautious, particularly the terms of the ground rent and the ability for the freehold to be sold.

 

Although there are service charges as part of these properties, these do usually include property/buildings insurance and all external maintenance, so if the fees are reasonable, your yield should not be negatively impacted.