Let’s talk leasehold charges
News article published on: 6th May 2020
Buying a home warrants a financial commitment like no other. From needing cash for a deposit, mortgage fees, conveyancing fees, stamp duty and moving costs, the list is extensive! And it doesn’t stop there if you are buying a leasehold property, in fact there may be “hidden” costs beyond those listed above. In this article I aim to summarise what these are when buying a leasehold property.
There are two different types of ownership that generally apply when buying a property in England and Wales:
Freehold: you own both the land and the building that sits on it.
Leasehold: you own the building, however the land is leased from the freeholder or landlord for a specific time and you must pay ground rent and possibly service charges.
It can be complicated and potentially expensive buying a leasehold property. 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.
The types of charges can be divided into three groups.
- Ground rent: this is usually a yearly charge which you pay to the landlord. It may rise over time.
- Service charges: this is a charge towards the day-to-day running costs of the development and is used to cover items such as building insurance, maintenance, repairs, gardening and communal facilities.
- Administration charges discussed below.
So what are these ‘hidden’ costs when buying a leasehold property?
Simply becoming the new lessee can bring a cost. Your solicitor may be required to provide a Notice of Assignment to the landlord informing them you are the new owner and you’ll have to pay for that privilege, likely to be around £100 plus VAT.
If you are buying with a mortgage, another essential document is a Notice of Charge that informs the landlord, a third party holds an interest in the property. The cost of this could range between £50 to £200.
Some leases require that you enter into a Deed of Covenant to confirm that you will be bound by the terms of the lease. This is a direct contract between, you, the buyer and the leaseholder. This deed might be a part of a landlord’s pack, provided to your solicitor and can cost up to £350 (or even more).
Another document is the Certificate of Compliance. This is a document which confirms to the Land Registry that the requirements in the lease for the change in ownership have been completed with. The charge for this could be between £50 to £100.
It may be a requirement to become a member of the Management Company. This brings with it the possibility of another charge – becoming a shareholder in the management company or residents’ association that runs the building. There is usually a nominal fee involved in having a share certificate issued in your name.
I hope this has given you an idea of the charges to look out for when buying a leasehold property. If you would like more information with any of the above, please get in touch.
Blog post written by Jema Thaker, solicitor in the Property Law team.