Leasehold Purchases – the hidden costs

Many of our clients who purchase leasehold properties very often seem surprised at the cost of acquiring the property. The vast majority of flats/apartments are leasehold, as opposed to houses which are generally freehold title.

On the face of it, purchasing flats or apartments are a cost effective way of getting on the property ladder or purchasing a property which will provide security and low maintenance costs when downsizing, often on retirement.

However, there are a number of cost considerations when buying a leasehold property that some clients may not be aware of:

1. Legal Costs
Solicitors will tend to charge more for acting on a purchase or sale of a leasehold property than a freehold. That is because the legal title tends to be more complex with more documents to be advised upon and scrutinised by the solicitor thus involving more of the lawyer’s time. This means that legal costs are generally higher when selling or purchasing a flat than for a house of similar value.

2. Service Charges and Ground Rent
The building of a block of flats in which the flat or apartment is situated will normally be run by a management company. This will deal with such issues as the insurance of the building, maintenance of the building itself, i.e. lifts, reception areas and common amenities, communal gardens and common car parking areas. All leaseholders must contribute towards this cost and normally upon completion it is required by the freehold management company for the incoming leaseholder to pay a certain amount of charges in advance, normally up to the next financial year end. Thereafter, service charges and ground rent will be charged on a monthly, quarterly or half yearly basis. Most freehold management companies will require this arrangement to be dealt with by way of bank direct debit or standing order.

3. Notices on Completion
Under the provisions of most leases, it is necessary for the solicitor acting for the purchaser of a flat to serve notice on the freehold management company of the change in ownership. Freehold management companies would normally appoint a solicitor to do this and in some instances, we have come across examples where the receipting and returning of a simple notice document can incur a fee of as much as £250.

4. Deed of Covenant Fees
Likewise, it may be necessary under the terms of the lease for the incoming leaseholder to enter into a direct Deed of Covenant (another name for a contract) with the Management Company to abide by the terms of the lease. Once again, it is normally the case that the ingoing flat owner’s solicitor will have to prepare this document and obtain the buyer’s signature to it and thereafter forward it to the management company’s solicitors for registration. Again we have come across instances where merely acknowledging this document will incur a fee of £250 for the buyer.

5. Transfer Fee
Some leases provide that upon the sale of the leasehold property, the seller must pay upon completion a sum of 1% of the gross sale price to the freeholder. This is something which comes as a surprise to sellers who will have either not been properly advised when they purchased the property or have forgotten about this provision.

6. Contingency Fees
Likewise, we have come across leases where either the seller or the purchaser will have to make a contribution towards any unknown future expenses which may be incurred by the freeholder in the maintenance or upkeep of the building or any common parts of communal areas. This can once again be as much as 1% of the gross sale price which is payable to the freeholder upon completion.

Therefore when purchasing a leasehold property, it is important to find out all the costs at the outset. Additionally leases often provide for restrictions on use and wide ranging covenants which prevent the flat being used in a way which may cause nuisance or annoyance to fellow flat owners in the same building.

At Ungoed Thomas and King, we always endeavour to advise our clients when selling or buying leasehold property as early as possible with regard to the provisions of the lease and what, in practical terms this means for them and the cost of complying with the freeholder’s requirements.

For further information in connection with the selling or buying of leasehold properties, please contact our Property Department on 01267 23741 or mail@utk.co.uk.