When you are purchasing a leasehold property you should be aware that ground rent and service charge are likely to apply on an annual basis throughout your ownership of the property. These charges will be specific to your property and will be paid directly to the freeholder or their management company.
When buying a leasehold property it is important to consider the ground rent provisions contained within the lease as a lack of acceptable ground rent provisions may deter a lender, both now and in the future, and your ability to sell the property at a later date may also be affected.
One of the most important considerations is the frequency at which it is reviewed. Ground rent provisions which see an increase every 5, 10 or 15 years are unlikely to be considered reasonable by a mortgage lender. Without the lender’s approval, you cannot borrow against the leasehold property and may ultimately not be able to proceed with the purchase.
In addition, it is extremely important to consider the actual amount of ground rent payable. As well as a question of affordability, consideration must also be given to whether the ground rent exceeds £250 a year (or £1,000 in London). Where ground rent exceeds this amount, the lease can be viewed as an Assured Shorthold Tenancy (AST) under the Housing Act 1988. This means that the freeholder can seek to determine the lease and take back possession of the property if ground rent is not paid.
If the lease does contain some or all of these provisions, the lender must be notified. Some lenders may withdraw their mortgage offer following such notification. It is therefore advisable that you obtain information about the lease and ground rent provisions at an early stage so that a determination can be made as to whether the lender will accept the position. If the lender does not accept the position, the transaction will have to cease unless another lender, who will accept the position, can be found or an approach made to the freeholder to see whether they would be prepared to amend the lease. To amend the lease a Deed of Variation would need to be drafted. This may result in a delay in your purchase and an increase in costs.
Even where a lender accepts the ground rent provisions now, there is no guarantee that they, or other lenders, will accept the position in years to come. This may therefore affect the potential future sale of your property.
You should speak to your solicitor about any concerns you may have regarding ground rent provisions.
The Thompson Smith and Puxon Residential Property team can help with all types of residential property matters, in particular, your purchase, your sale or your remortgage. They can be contacted on 01206 574431 in Colchester or 01255 221919 in Clacton or by email at email@example.com.