Amidst all the excitement of moving into your very first flat, it's all too easy to forget that if it's a leasehold property, there could be a high price to pay.
Not only will you, as a homeowner, be required to pay often expensive service charges, you may eventually find that it's necessary to extend your lease, a cost which runs into the thousands.
There are, however, laws that allow leaseholders to buy the freehold from the land owner. If this is something you are considering, here's what you need to know.
What is leasehold?
As the leaseholder of a property, you own the flat itself, but not the land that the building stands on. The landlord, or freeholder, has a legal agreement, or lease, allowing you to own the property for a fixed period of time. Once the lease expires, in theory the property reverts to the freeholder.
The freeholder usually employs a management company or agent to look after the service charges, buildings insurance, ground rents and any maintenance work that is required. For these services, each leaseholder in the building pays an annual fee, which often amounts to more than £1,000. Any major building works carried out such as exterior painting or roof repairs are often charged as extra, with each leaseholder sharing the cost.
Since it is often much harder to get a mortgage on a leasehold property where the lease is below 70 years, anyone wishing to sell their leasehold flat may find themselves paying tens of thousands of pounds to extend the lease.
Should you buy the freehold?
Every leaseholder in the country has the right to club together with the others in the building to buy the lease, effectively forcing the freeholder to sell the whole property.
The cost of doing so if often similar to what each leaseholder would pay for a 90-year lease extension, but owning the freehold affords everybody much more control over the suppliers chosen and any building works that need doing.
Insurance, building works and maintenance all, of course, still need to be paid for and carried out, so you will need to take responsibility, but everyone who owns a share of the freehold can come together to make decisions about which providers, policies and works need to be done and when. Many find they save a considerable sum simply by choosing the value for money options. As freeholders, you are also often able to extend the lease to 999 years at no cost aside from legal fees.
What's more, a flat with a share of the freehold will usually command a higher price when it comes to selling, with most surveyors adding an average one per cent onto the value of the property.
Do bear in mind, however, that the legal process can be costly, not to mention lengthy.
What to do next
In order to buy the freehold, at least 50 per cent of the building's leaseholders need to be willing to pay for the privilege. If you have their agreement, the next step is to find a good solicitor, preferably one who specialises in collective enfranchisement, as expert legal advice is essential.
They will then serve the initial notice and negotiate the price, before amending the leases. It is wise to ask each of the other residents to sign what is known as a 'participation agreement' in order to avoid last-minute changes of heart.
It is also necessary to hire a chartered surveyor, also an expert in collective enfranchisement, to value the freehold.
The leaseholders will also need to set up a company before serving notice to the freeholder. This company, which costs in the region of £250 to set up, will be responsible for the accounts and duties previously taken care of by the managing agents. Again, ask your solicitor about the ins and outs of starting and running the company.
Once this has been done, price negotiations can begin. Once notice has been served stating your offer, the freeholder has two months to reply and will often come back with a counter offer. It is wise to give them a deadline, however, as if they fail to reply you can then go to a Leasehold Valuation Tribunal, which will set a figure for the freehold.
All in all, the process can take up to a year to be completely resolved, and, as previously mentioned, specialist legal advice is invaluable throughout.
If your application is successful, though, you will enjoy far greater freedom, add value to your property, and more than likely save money on services in the long run.
Have you bought the freehold for your property? Would you recommend it to others? Leave your comments below...