If you are buying a flat or, in some cases a house, it could be leasehold. This means extra work for your solicitor. Here’s what you need to know about leasehold conveyancing.
Leasehold conveyancing is the legal process for buying a leasehold property. All homes are owned on either a freehold or leasehold basis. Freehold means you own the building and the land it stands on outright. Leasehold means you have a lease from the freeholder to use the home for a set number of years. Effectively what you are buying is the benefit of the lease contract rather than outright ownership of the property. Lease are long-term usually from 90 to 999 years.
Here we’ll look at the legal process for buying a leasehold property. You can find out more about buying a freehold property with our guide to the legal side of buying a home.
What is leasehold conveyancing?
If you are buying a leasehold property then your solicitor will need to look through the lease and its terms on top of all the normal legal work involved in buying a property. They will also have to deal with the landlord and/or management company as well as the vendor’s solicitor. This can make the process longer and more expensive.
Not sure if your new home is leasehold? If it is a flat, it is highly likely that it is leasehold. It’s unusual for a house to be leasehold but some old terraced houses are leasehold as well as some new build houses. The estate agent’s marketing materials should confirm the ‘tenure’ of the property (that’s whether it is leasehold or freehold). Always make sure your solicitor or conveyancer confirms the position at an early stage.
The government has announced plans to ban the sale of leasehold houses. But, this hasn’t yet been made law and evidence shows that almost 3,000 new houses were sold leasehold in 2018 despite the government’s plan. Be very clear about the tenure of a property and how it could affect your bills and ability to sell in the future before you agree to a purchase.
What is a lease?
Once your property solicitor or conveyancer has received the memorandum of sale from the estate agent the first thing they will ask the seller’s solicitor for is a copy of the lease. This is the contract that exists between the leaseholder (that will be you once you own the property) and the freeholder, also known as the landlord.
The lease gives the leaseholder the right to occupy the property for a set period subject to specific conditions that will be written into the lease. It is important that your solicitor gets a copy of the lease and looks through it to make sure they, and ultimately you, understand your rights and obligations under the lease.
Your solicitor should be able to provide you with a ‘report on title’ which includes a summary of the main provisions of the lease so you can understand what is required of you. Some of these obligations can include:
- Paying ground rent. Your lease may initially require you to pay a fixed amount of ground rent. But, there may be a clause that allows the landlord to increase this rent in years to come.
- Service charges. This covers the costs the landlord incurs maintaining the building each year. For example, cleaning communal areas or fixing the roof. It also covers the cost of the management company.
- Future work. The service charge may also allow for a sinking fund to cover your contribution to future planned improvements to the building and communal areas.
- Administration charges. The freeholder and/or the management company may levy extra charges if you ask them to do something connected to you buying/selling or using your property. For example, if you ask them to provide replies to leasehold property enquiries or if you need them to consent to alterations to the property.
You can find out more with our handy guide to leasehold charges.
Your lease will also explain what responsibilities the freeholder has. This can include:
- Maintaining the structure of the building
- Making sure the exterior and common areas are in good working order
- Arranging buildings insurance
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Who owns the freehold?
Your solicitor or conveyancer needs to find out who owns the freehold for the property. Is it an individual or a company?
In an apartment block it is normal for each flat to have a lease. Then the communal areas – stairs, entrance hallway and garden for example – are retained by the owner of the freehold. So, you need to know who the freeholder is in case there are problems with these areas.
Is there a management company?
In some instances, the owners of leasehold properties come together and buy the freehold. They then form a management company to handle the upkeep and insurance of the property. Each leaseholder may have shares in this management company. If that’s the case your solicitor needs to check the company documents and the accounts. The shares should then be transferred to you as the new owner on completion.
How long is the lease?
One of the most important things your solicitor needs to do is find out how long is left on your lease. The remaining term of your lease could affect your ability to get a mortgage. Most lenders won’t offer mortgages on properties with less than 70 years left on the lease and some will want over 80 years. You can find out more with our guide to getting a mortgage on a leasehold property.
The shorter your lease the less it is worth and the more it will cost to extend it. This will also affect the value of your property as a place with a short lease is harder to sell. Once there is less than 80 years left on the lease, lease extensions become more expensive. As many buyers want to maintain their investment – and won’t want to run into problems themselves when they want to sell – you can often find that well advised buyers are reluctant to proceed if a lease is much shorter than 90 years.
If you are buying a property subject to a lease of under 90 years make sure that you factor in the cost of having to obtain a lease extension in the near future. Or try to use this future cost as a negotiating tool when agreeing the price.
It’s also important to be aware that leaseholders are only entitled to a statutory lease extension if they have owned the leasehold property for at least two years. Although you could try asking the vendor to start the lease extension process for you. See our guide to lease extensions for more details on statutory lease extensions and informal lease extensions.
What does my solicitor need to check on the lease?
As well as checking the length of the remaining lease your solicitor or conveyancer should also make a number of enquiries about your lease to the landlord. These include:
- Charges. What charges will you be liable for as the leaseholder? This will include the service charge and ground rent. Your solicitor should also check when these payments are due and how much they will be.
- Planned major works. Are any renovations or repairs planned for the property that could affect the value of your home, or your enjoyment of it, or the service charge.
- Balance of the service charge account. Service charges are usually based on an estimate of what the landlord thinks will be spent over the year. They should produce an end of year statement to show how much has been spent and how much is left in the account.
- Sinking fund. This is a fund to deal with any building work on the property. Your solicitor should check if your lease includes a sink fund. If it does then what the balance is and if that is sufficient to cover any planned works.
- What you can use. Your solicitor needs to check exactly what the boundaries of your leasehold property are. For example, if you are buying a top floor flat does this include rights over the loft space.
- What you can do. Your solicitor should also check the lease for any restrictions on what you can do to your property. Are you allowed to renovate the space without permission?
Find out more about the fees and charges involved in owning a leasehold property.
How much does leasehold conveyancing cost?
Conveyancing on a leasehold property is usually more expensive than the legal costs for buying a freehold property. This is because your solicitor has to complete extra work checking the lease and making enquiries with the landlord.
In all likelihood, you will also have to pay extra fees, through your solicitor, to the landlord for providing the information you need and replying to enquiries.
For a start sellers will have to pay for the Leasehold Management Pack with information about services charges etc. The cost for this can vary significantly from £300 to as much as £800.
If you have bought a leasehold property, you will also have to pay for a Notice of Assignment also known as a Notice of Transfer. Your conveyancer sends this to the landlord informing them you are the new owner. Some management firms don’t charge for this, others charge up to £300. If you are buying your property with a mortgage, then a Notice of Charge is also sent to the landlord telling them the lender has an interest in the property. This costs another £50 to £200.
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How long does leasehold conveyancing take?
Leasehold conveyancing tends to take longer than conveyancing on a freehold property. This is simply because there is more work for your solicitor to do and they have to wait for another party – the landlord – to respond to their enquiries.
All the extra fees your solicitor has to ask you for can delay the leasehold conveyancing process. It isn’t uncommon for delays simply because the solicitor has to ask you for money, wait to receive the money, send it on to the management firm that has requested it, then wait for it to clear. It’s more likely, however, that the delay could be due to the landlord responding to the enquiries.
A leasehold purchase can take at least eight to 10 weeks, but a huge number of things could delay that. In an ideal world a chain-free sale shouldn’t take longer than three months, add in a chain to the complications of leasehold and you could be looking at six months.
Do I need leasehold indemnity insurance?
Your lease has to conform to the guidelines set out by the Council for Mortgage Lenders (CML). Leases created after 1990 are likely to conform but older ones may not meet the guidelines and is then classed as defective. In this situation your solicitor may recommend you take out an indemnity insurance policy to protect against any losses arising from a defect in the lease.
You can find out more with our guide to indemnity insurance.
Leasehold in need of reform
We think the leasehold system is in urgent need of reform. At the HomeOwners Alliance we help far too many homeowners who are being treated unfairly by their freeholder.
We are campaigning for leasehold reform. We want to see:
- Legislation confirming the ban on the sale of new build houses as leasehold.
- A cap on ground rent. A voluntary pledge now exists for freeholders. Those who sign up pledge not to double ground rent more often than every 20 years on both new and existing leasehold properties. We want this pledge to become law, rather than purely voluntary.
- Ban ground rent on new homes. We want the government to ban ground rent on all new leasehold properties and lease extensions as part of a public commitment to phase out the much-abused leasehold system.
- Ban on the sale of freehold of leasehold houses to third parties without giving the leaseholder first refusal.
- Conveyancing fees including leasehold
- Conveyancing process explained
- New build conveyancing process explained
- Getting a mortgage on a leasehold property
- Leasehold vs freehold – what’s the difference?
- Living in a leasehold house: what you need to know
- Leasehold extension calculator
- Leasehold charges – what to know before you buy
- Step-by-step guide to buying a freehold
- Should I extend my lease?
- Step-by-step guide to extending your lease