What to consider when buying a leasehold property?
If you are buying a leasehold property there are a number of checks you should make to ensure you are not left out of pocket.
- Check you are permitted to let it out. Renting out a leasehold property is considered sub-letting, which some leasehold contracts forbid.
- Check whether the lease permits renting to tenants who form a group of “more than one family”. Many leases do not allow a HMO to be formed.
- Check out whether the lease permits “Airbnb”. It is a condition of many leases that the dwelling is only occupied as the “main residence” of the occupiers.
- Check whether the lease provides for a charge to be made when any new AST is granted by the leaseholder. This can come as an unwelcome expense if you are not aware of it.
- Check how much ground rent, buildings insurance and service charges you will have to pay and how much they can be increased by in the terms of the lease. You may have to pay extra insurance once you let out the rental.
- Check how many years are left on the lease. Remember that if the property has less than 70 years left you may struggle to get a mortgage or to sell it. Typically, a good lease length is between 90 and 125 years, but some are as long as 999 years. If it has a short lease it would be advisable to try to extend it.
- Check whether there is a “sinking fund”. This is cash paid in by all the leaseholders in a block to fund major repairs. Without one you could be hit with some hefty bills should something go wrong.
- Check the situation when it comes to extension and alterations. If you want to let your property, build in the garden, or even knock down an internal wall you are likely to need the permission of the freeholder – and they can charge you handsomely, both for asking and for granting permission.
- Always take legal advice before signing on the dotted line – from a solicitor who is competent and has a track record in handling leasehold purchases. Ensure they confirm to you in writing that they have read it and that they outline in writing the main points of the lease.