When you look at the particulars of an apartment you will be told whether it a leasehold properties or you are buying a share of the freehold. When you buy a freehold – as is common when you buy a house – you buy the land on which it stands and the right to live on that land indefinitely.
Some apartments are sold with a share of the freehold, meaning you buy a stake in the land. However, most are leasehold properties. Somewhere in the background is a freeholder who owns the ground on which they stand. You just buy the right to live in the building for a set number of years – the number that the lease has to run – and at the end of the lease ownership of the property reverts to the freeholder. To live there you pay the landlord a ground rent, as well as a service charge to manage any communal areas inside and outside the building. Details of these will be laid out in the lease.
If you intend to buy a leasehold flat there are things you need to consider that you would not have to think about were you buying a freehold house. The first thing is the length of the lease. Most lenders ask that it runs at least 30 years after the end of the mortgage term.
Most properties are sold with a lease of at least 100 years. If you go for a short lease you are restricting your choice of lender and if there are less than 25 years left on the lease at the end of the mortgage it is very difficult to get a loan, unless the property is in a very desirable area. Homes in Mayfair, for example, traditionally have very short leases.
However, all is not lost if the apartment of your dreams does have a short lease. If you can afford it, you ask your lender if they will give you a 15-year mortgage.
The length of the remaining lease on a property should be easy to establish but other important information may not be unearthed until your solicitor sees the lease. One thing they will be looking for is any maintenance and service charges. As well as maintenance of communal areas, the service charge may also cover any buildings insurance on the block or converted house, though in rare cases leaseholders will be asked to organise this themselves. Details of the level of charges and what they cover should be included in the lease.
As well as regular charges, ask your solicitor to check that there are no charges owed on the property by the existing owners, and no plans to undertake expensive work on communal areas. You will be liable to pay for some of these works, so it’s well worth finding out. Your solicitor should check all these points and inform you if there is anything unusual or restrictive in your lease.
Some apartments are sold with a share of the freehold for the building. There is still a lease for each flat but the residents grant the lease as a group and act as landlord. If you’re buying a flat with a share of the freehold your solicitor still needs to review a copy of the lease but there may be room for negotiation with the other freeholders.
There are a number of advantages to owning a share of the freehold. Freeholders can grant longer leases without having to pay a premium, they can get together and change any terms of the lease that cause problems, and they can decide between themselves on a fair service charge.
However owning a share of the freehold can pose problems. Unless you employ a managing agent looking after the property could be time-consuming. And if your neighbours are uncooperative you may never be able to agree on what work needs doing.
There can also be problems when it comes to getting a mortgage with many lender refusing to consider loans on shared freeholds. If you’re planning to apply for an agreement in principle before going flat hunting, make sure you ask whether your chosen lender will lend on this type of property.