Ten top tips

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Ten top tips about leases

Ask the average buyer what issues they are considering with regard to the leases on the flats they are viewing and you will get blank looks. But issues with relation to the leasehold of flats can have a huge bearing on the value and marketability of a flat. Here are some things to consider:

1. What is the freeholder like? Many flat owners discover too late that they have bought a property where the freeholder is managing the property badly and levying excessive service charges and offering overpriced lease extensions. The best way to get to the bottom of this is to ring on the doorbells of neighbouring flats, but make sure that you are speaking to the owner and not just a tenant! If it turns out the freeholder is a monster, check that you can buy them out. If not, walk away!

2. Do not buy a flat with a lease with less than 85 years remaining without raising the issue of lease extension or freehold acquisition. The lease length is bound to become an issue during your ownership, so it is better tackled head on.

3. Check the shortest lease your mortgage lender will allow. Usually this is around 70 years, others will accept down to 65 years. If the current lease length of the property you are considering is close to this limit, you can use this as a bargaining chip with the seller.

4. If the lease is short (ie less than 70 years) and you are willing to accept the costs or negotiate the costs with the seller, you may need to get the seller to begin the lease extension process BEFORE you buy. You need to have owned a flat for two years before you can serve a Section 42 Notice, as it is called. And this notice will compel the freeholder to extend the lease, whether they want to or not. In any case, the current owner is usually in a stronger bargaining position with the freeholder than a purchaser would be. However, never forget that the lease length is the seller’s problem, not the buyer’s. If they cannot sort it out, go and buy another flat without a short lease problem.

5. 80 years is a significant number: when the unexpired term of a lease drops below this level then you begin paying an additional element called marriage value if buy your share of freehold or extend the lease. Seek legal advice if the lease on your chosen property is between 81 and 85 years unexpired.

6. What is the managing agent like? How high are the service charges? If they are bad, you may be able to exercise your rights to get rid of the managing agent after you have bought. So check with your solicitor and you may be able to use this as a bargaining point.

7. Don’t take the word of estate agents on the subject of lease values or the benefits of shares of freehold in a block of flats. Most have no idea of the values and implications. Better to speak to a surveyor or solicitor if you are unsure. For just £3 you can download the leasehold title from the Land Registry website (www.landregisteronline.gov.uk), which will show you the exact lease length without having to take anyone else’s word for it.

8. Estate agents may not be sure why a long lease or share of freehold is a good thing. But one thing you can be sure of is that they mention it in the particulars of properties, so clearly it does add some value.

9. Long leasehold or share of freehold is well worth having. Whether or not you want to pay more for a flat with it compared to one that does not is up for discussion. However, the grief and aggravations of buying share of freehold or extending your lease is taken care of.

10. If you are buying a flat that has already bought its share of freehold, find out if there were some flats in the block that did not buy into the scheme plus have not extended their leases. There could be hidden value in there! If the “non-participants” have a short lease, then eventually they must come to the freehold company to extend. If you are a shareholder, you share in the potential windfall. We are talking £5,000 – £30,000 to be shared among the freehold company participants at some point so you may be able to factor that into your haggling. The seller will not usually be entitled to take this benefit with them.

For further information on extending your lease or buying your freehold, please call us free of charge on 0808 1311 109 or use our form below.

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