1. Your Conveyancer needs to read the lease
The lease is an important and complex document that has to be checked on behalf of a Buyer. If a Buyer is obtaining a mortgage, the conveyancing solicitor also has to work on behalf of the lender to ensure that the lease meets with the lender’s requirements.
2.What is the unexpired term of the lease?
As a general rule, the longer the unexpired term of the lease, the more your asset is worth.
Many mortgage lenders will not lend on a lease that is under a certain number of years. Often, where the unexpired term is 70 or less, the conveyancing solicitor will be obliged to notify the lender and await confirmation that they will still lend.
It is possible to extend a lease, but you will have to pay a premium to the landlord (owner of the freehold) as well as legal fees.
3. You need to know who owns the freehold
Is it an individual or a company? Your conveyancing solicitor will need to request information from them, and this may take time.
In a block of flats, usually each has a lease and the communal areas, e.g. stairs, entrance hallway and garden, are retained by the Landlord. As the Landlord has these responsibilities, you need to know who they are.
4. Is there a Management Company?
Sometimes, the owners of the leasehold properties get together and buy the freehold, and then form a Management Company to take care of the upkeep and insurance of the property. It might be that the company is limited by shares and so, each flat owner (the lessee) will have shares in the Management Company. If this is the case, the company documents should be checked together with all the accounts and the share(s) must be transferred on completion.
5. Know your legal obligations
The lease contains covenants; these are promises that the Lessee is obliged to fulfil. For example, to keep the property in good repair, paint the inside of the property every 3 years or pay the service charges.
A Buyer must be aware that on completion, he/she will take responsibility for the covenants in the lease.
6. How much Service Charge will you have to pay?
The conveyancing solicitor will have to contact the Landlord to find out what the current monthly service charge is and to also check that this has been paid to date. The solicitor will ask if there is any major work planned, e.g. repair of the lift, and whether or not there are funds available for this expense.
It is usually advisable to look at the expenditure of the Management Company and/or freeholder over the last 3 years, and to see if there has been any major expenditure or any debt incurred. This information should be passed onto a Buyer so that they can budget accordingly.
7. Who is arranging the Buildings Insurance Policy?
The Landlord/Management Company insures the building and usually there will be a covenant in the lease obliging the Lessee to pay their portion of the sum. The solicitor will check that there is buildings insurance in place and, of course, that the insurance company has been paid.
From a practical perspective, it is unlikely that a Buyer will be able to purchase buildings insurance for just one flat within a block of flats from an insurance company. Insurance ultimately protects your asset and the asset of the Landlord.
NB the Buyer also should insure the contents of the flat.
8. The Buildings Insurance Policy must also meet the requirements of the Lender
The lender will expect their solicitor to check the details of the buildings insurance policy carefully to protect their loan. If the policy deviates from their specific requirements, then the lender will have to be notified and will have to confirm that they will lend.
9. Consent from the Landlord to sell
Does the lease state that the Landlord needs to give consent to a sale? If so, a licence may need to be prepared and a fee paid.
10. Are there any Disputes?
Your conveyancing solicitor will try and find out if there are any disputes between neighbours, the Landlord and/or Management Company.
We advise that the sale or purchase of a leasehold property should take in the region of 10-16 weeks. To obtain a quote in relation to your matter, please contact us our residential property team.