What should I look for when buying a leasehold property?

Firstly check the term of years. A 999 year lease with a nominal ground rent will not cause you any issues.

However, any lease with a term of less than 90 years needs to be given careful consideration as it is likely that this will need to be extended in the near future and you need to understand what the cost of this will be. It is important to ensure that your valuation of the property is carried out taking into consideration the number of years left of the lease as short leases will reduce the value of a property.

Once the term reduces below 80 years, the cost of a lease extension will increase significantly. The calculation of the premium payable to extend a lease will vary considerably and should be carried out by a surveyor experienced in lease extensions.

Secondly, the lower the ground rent payable under the lease the better. If the ground rent increases during the term of the lease this can be an issue depending on the frequency and how the increase is calculated. Doubling ground rents are not acceptable to lenders. Most lenders accept increases calculated in accordance with the Retail Price Index.

Other matters to take into consideration are whether there is a service charge payable and if so is this reasonable. Is there a sinking fund for major works that may be required in the future? If not consider who would have to pay for any major works should they be necessary in the future and it would be prudent to budget for these. Freeholders also often charge fees for providing up to date information regarding ground rent and service charge payments which is necessary when it comes to selling a property.

Enjoyed this? Read more from Linda Kirk, Slater+Gordon

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