Your estate agent must tell you anything significant that may affect your decision whether to buy a flat.
- There are two different ways of owning property in England and Wales. Freehold is typically for houses and leasehold is usually for flats.
- Freehold means that you own the land and the building that sits on it.
- Leasehold means that you own a lease, which is a contract that gives you the right to live in the property for a set number of years (for example, 99, 125 or 999 years).
- The lease will set out the detailed terms on which you are entitled to live in the property, including your rights and responsibilities as a leaseholder.
Some differences between freehold and leasehold
|Should I have a survey?||Yes.||Yes. Matters to do with the inside of a flat are just as important as those in a house, and the survey should also cover the building the flat is in.|
|Who organises and pays for the maintenance of the building?||Usually you.||The owner of the building (the landlord) usually maintains the shared parts of the building (often through a professional managing agent) and will recover your share of the cost through the service charge.|
|Who insures the building?||Usually you.||The landlord usually insures the building and charges you your share of the cost as a service charge. You will be responsible for insuring your contents.|
|Can I alter the property?||Yes, as long as you have the necessary planning, building control and other necessary permission.||You will usually need written permission from the landlord before making any structural changes. They may charge a fee for this.|
|Can I run a business from the property?||Usually yes.||The lease may not allow you to do this – check with your solicitor.|
|Can I let the property?||Usually yes, but remember to check your mortgage conditions.|
|Am I allowed pets?||Usually yes.|
Terms you should know
This is the written agreement that sets out your rights and responsibilities, including your right to live in and use the property. The same lease is passed on every time the flat is sold, so the length of the lease keeps reducing. Once you have owned a leasehold property for more than two years you will normally have the right to extend the lease by a further 90 years. If the lease has less than 80 years remaining you still have this right, but you will usually have to pay an increased price to the freeholder (or head leaseholder) for this extension. It is particularly important to get professional advice on this last point, especially if the lease on the property has less than 85 years remaining. Most mortgage companies will only lend you money for a lease that has more than 80 years remaining, so you should always get professional advice.
This is usually a yearly charge which you pay to the landlord. It may rise over time.
The managing agent is a professional, hired by the landlord or in some cases a residents’ management company, to arrange services, repairs, maintenance, improvements or insurance, or to deal with any other aspect of the management. Managing agents are typically hired for buildings that have been divided into flats.
Reserve or sinking fund
Some leases allow landlords to collect extra money from flat owners every year towards large, but infrequent, work projects such as decorating the outside of a property or replacing the lift, boiler or roof. This means the cost of major work can be spread over a number of years.
A residents’ association is a group of residents (normally leaseholders) who live in houses or flats which have leases from the same landlord. A recognised tenants’ association is one which has specific rights by law, and whose members have come together to represent their common interests so that the association can use those rights to act on their behalf.
These are charges which the managing agent collects, on behalf of the landlord, to cover your share of all the costs of maintaining and insuring the building. The amount will vary depending on the services provided. By law, service charges must be reasonable and, although it can be helpful to know how much recent charges have been, the costs for the same services can vary over time as well as for different levels of service.
Share of freehold
Flat owners have a share of the freehold if the whole building is owned by all of the flat owners, typically through a company in which they each have a share. However, having a share in the freehold does not mean that you can do as you please. You must still keep to the terms of the lease.
This information is general and you should not rely on it in relation to any particular property you are considering buying. You should only use it to understand some of the differences between leasehold and freehold. It only applies to properties in England and Wales. You will need to ask your solicitor for advice about any property you have agreed to buy before you commit to buy it – this will usually mean before you enter into a contract to buy it.