Buying a flat? Things to look out for

Buying a flat is an increasingly common choice, particularly for first time buyers. But a flat is a very different proposition from a house. Here are some issues to look out for.

How long should a lease be when buying a flat?

When first granted, there’s no restriction on the length of a lease, but typically, most are for 99, 125 or 999 years. Knowing how many years remain on the lease of the flat you intend to buy is essential, and known as the ‘term’ of the lease.

Mortgage lenders will refuse to lend if they consider the lease term too short. In some cases, lenders consider a lease term of 85 years to be too short. A short lease can significantly affect the value of your flat and your ability to remortgage or sell it.

You have the right to extend your lease after owning the property for at least two years. But once the remaining lease term falls below 80 years, the price you pay for the lease extension increases sharply. The reason for that is because ‘marriage value’ becomes payable to the landlord. Marriage value represents the increase in the flat’s value resulting from the grant of the new lease.

What does demised premises mean?

Knowing what parts of the property fall within your ownership under the lease is essential – the ‘demised premises’.

Your lease defines the demised premises. Typically included are the flat’s interior, including the interior wall surfaces, the ceiling above and the joists below. In most cases, the structural, external walls, and the roof are not part of the demised premises. It might include the loft space – or not.

In most cases, areas not falling within the demised premises remain part of the landlord’s retained property. Knowing the extent of the demised premises is particularly important should you wish to work on the property. If the work involves any part of the landlord’s retained property, they can refuse permission or request payment as a condition of granting permission.

Ground rent

Charging more than a peppercorn ground rent is now banned on new leasehold property. However, ground rents in force before the law changed on 30^th June 2022 remain lawful. As with any regular outgoing, when buying a flat you should check the amount of the ground rent and the date of payment before committing yourself to the lease.

The change in the law resulted from what became known as the ‘ground rent scandal’. Many leases granted in recent years provide for ground rent increasing significantly in a short period – sometimes doubling every 10 or 15 years. In addition to the direct cost of the increased ground rent, many flats affected have become unmortgageable and unsaleable.

The lease will indicate when and how the landlord can increase ground rent. Many leases review ground rent in line with the Retail Price Index (RPI), but you may find that ground rent increases over time regardless of the inflation rate.

Service charges when buying a flat

Service charges should represent your share of the cost of managing and maintaining the building. As such, they include the cost of:

• general maintenance;
• building insurance; and
• lighting and cleaning communal areas.

Typically, the charges include the cost of ‘management services’ the landlord or a managing agent provides. There will also be a ‘reserve fund’ contribution for irregular and more expensive work or projects, eg repairing or replacing the roof or exterior decoration.

If a majority of flat owners in a block are in favour, they can take control of the block’s management under the ‘Right to Manage’.

Administration charges

It’s important to be aware of charges the landlord can demand from you for:

• granting approvals under the lease;
• the provision of information or documents;
• dealing with your non-payment of ground rent or service charges or in connection with another breach of the lease.

Leasehold alterations without consent

When buying a flat, it’s crucial to establish whether the flat has undergone any alterations and whether the previous owner obtained the landlord’s consent for them. New leaseholders can inherit the responsibility of obtaining retrospective consent.

Are any major works scheduled for the building

Are major works scheduled for the building? If so, is funding already in place through the reserve fund, or are you liable to contribute?

Covenants

Any covenants in the lease will bind you and the landlord. A covenant is an obligation owed to one party by another. ‘Positive’ covenants oblige a party to do something, whereas ‘restrictive’ covenants prohibit something. When buying a flat, you may find that one or more covenants in the lease will restrict your intended use of the flat in some way, perhaps barring you from keeping pets or using the property for business purposes.