Buying a leasehold property in London: key considerations

Properties in England are either leasehold or freehold. Most houses are freehold, whereas just about all flats or apartments, for quite complex legal reasons, are leasehold. There is a significant difference between the two. When you buy a freehold property, you own it, outright, forever. However, when you buy a leasehold property, you are only actually buying a right to live in the property for the term of the lease.

While there are freehold properties throughout London, a lot of Londoners live in flats. So, if you’re buying a property in London, there is a chance that you will be buying a leasehold flat. These are some key considerations.

Check the term of the lease

The longer the term of the lease, the better and the corollary of that is the shorter the term, the worse. Generally speaking, leases with less than 80 years of the term remaining are considered less valuable and more difficult to market when you come to sell. Also, note the difference between the term granted by the lease and the remaining term left to run. A 125-year lease granted, say, in 1990, only has 92 years left to run (in 2023).

Fortunately, the law can help. Once you have been living in your leasehold flat for two years, you are automatically entitled to a lease extension from the freeholder. While the freeholder is obliged to grant the extension, they can charge a premium, so you need to factor this into your finances when you purchase the flat. It is considered wise to seek this ‘statutory extension’ while the lease still has at least 90 years left to run.

The demise

When you buy a flat in London, or anywhere, it is usually one of several in a block of flats. Consequently, you need to know where your flat ends and someone else’s flat, or the common parts of the building, begin. This is known as the demise. Generally speaking, your demise will include all the interior parts, walls and surfaces of the property but not the outside walls, the roof or any other structural parts of the building.

The lease will often include a plan of the property with the extent of your demise clearly marked. This may include things like your own parking space or storage facility. It is very important that you check and familiarise yourself with your demise, so that you know exactly what you are responsible for.

Unauthorised internal alterations

It is very common for leases to contain a clause which obliges the flat owner to seek the freeholder’s permission for any material alterations to the flat. If your predecessor carried out unauthorised alterations, then the freeholder can enforce against you when you become the owner. Therefore, when you view the flat, you should always compare the physical layout of the flat with the lease plan, in case any alterations have been made. It may be that those alterations were authorised, but you will need to check this before you buy an apartment in London.

If you want to make material alterations to the flat once you purchase it, you will need to apply for permission in advance. This permission is called a ‘Licence for Alterations’. It is not customary for the freeholder to charge any premium for this but it is normal for the freeholder to ask you to pay or defray his legal and surveyor’s fees.

Additionally, residential leases often contain other conditions or restrictions such as a prohibition on sub-letting, rules against keeping pets and rules about keeping floors covered with carpet or other sound-deadening materials. You need to check all these restrictions thoroughly.

Ground rent and service charges

Most leases require the flat owner to pay a yearly ground rent. Sometimes, this is a minimal sum, known as a ‘peppercorn’. But, sometimes, they can amount to a few hundred pounds a year and increase every 25 years.

Buying a leasehold flat means that you are responsible for the upkeep and repair of your demise. However, the freeholders (or, very often, a management company on behalf of the freeholder) is responsible for the maintenance and upkeep of the building and common parts. Under the terms of the lease, the various flat owners are obliged to contribute proportionately to the total cost of the upkeep and maintenance of the building and this is known as ‘service charges’.

Failure to pay either the ground rent or service charges can have serious repercussions up to and including the freeholder taking the flat back and selling it to someone else in a process known as ‘forfeiture’.

This is why it is essential that you check the levels of ground rent and service charge before buying a leasehold property. It is also advisable to make specific enquiries as to whether any major works are planned in the foreseeable future as this cost will also be passed onto the flat owners and they have to pay it. The cost of, say, replacing the roof on a building can raise the service charges by a significant amount.

A residential lease can often prove to be complicated and contain many labyrinthine provisions, so it is vital that you seek the advice of an experienced, professional property lawyer who will be able to advise you on the terms of that lease and ensure that you know exactly what you are getting yourself into.

For further information and trusted legal advice regarding buying or selling a property, get in touch with us at Carlsons Solicitors.