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Guide of buying a leasehold residential property

June 16, 2023

Leasehold is a form of property ownership (or tenure) when you (as a Lessee) have an agreement, called “the Lease” between you and the owner who is the Freeholder or Landlord.

You own such leasehold property only for a fixed period and this ownership will return to the Landlord when the Lease comes to an end. If you own a leasehold property, you do not own the land it stands on and if the property is a flat, usually you do not own the shared parts or the structure of the building. Flats and new-build houses are usually sold as leasehold.

A typical conveyancing transaction divides into three stages: the pre-contract stage, the post-contract and post-completion stage.

On a pre-contract stage if you are thinking of buying a leasehold property you should start with clarifying the main following conditions of the potential Lease as

  • what is the number of years left on the lease,
  • will you have the option to extend the lease and on what conditions,
  • will you have the option to buy a share of the freehold,
  • what proposed use is permitted by the Lease,
  • what is the exact extent of the property demised by the lease.

Usually the buyer is acquiring an assignment of a long residential lease, by which we mean a lease of residential property granted at a premium and reserving a (nominal) ground rent. 

The length of the original term might be 99, 125 or even 999 years. Every time the property is sold, the same lease is passed to the new buyer, so the length reduces. So, you may ask the seller to extend the lease before you buy if you want to buy the property with a lease of less than 85 years, because you will not have the right to extend it yourself until you’ve owned it for at least two years. Eventually the shorter the lease gets, the more its value will decrease, or you may have problems with re-mortgaging or selling the property.

Another important conditions that should be considered carefully are the ground rent, insurance, service charge you will have to pay, covenants and restrictions in the Lease.

Before the contract is prepared, there will usually be preliminary discussions identifying the terms of the purchase.

As a buyer you will be responsible for investigation of the property, through your legal and other advisers by raising pre-contract enquiries – generally using industry-standard forms. Investigating the property involves finding out about the physical property, its legal title and any third-party rights affecting the property. When it comes to residential property, the parties use the Law Society Conveyancing Protocol and enquiries are raised using the relevant Law Society Transaction forms.   

Also, the legal adviser should comply with the firm’s professional conduct procedures, including: carrying out anti-money laundering checks, confirming instructions, providing a client care letter and information on costs to the client, identifying any conflicts of interest, checking what evidence of identity will be required by the Land Registry when you come to register the transfer etc.

On this  pre-contractual stage you should decide whether do you have sufficient funds for the purchase: the deposit (a deposit of 10% is usual, but the parties may have agreed a lower deposit), Stamp duty land tax (SDLT) or land transaction tax (LTT in Wales), any mortgage that may need to be redeemed on a connected sale, the cost of searches and Land Registry fees, the landlord’s fees for the grant of any licence to assign or charge that is required, legal fees and disbursements and those of any other professionals involved, such as a surveyor or conveyancer acting for the buyer’s lender.

Before exchanging contracts, your solicitor will receive and study the Lease to be assigned, title documents, replies to enquiries and the draft of the contract. Then there will be process of exchanging contracts by telephone, personal, postal or document exchange. The most common method of exchanging contracts is the telephone exchange.

The post-contract and post-completion stages of buying a leasehold property is mostly a legal part and you will be required just to follow the instructions of your legal adviser.

You can also find additional information about stages of the conveyancing process in our previous articles:

– A Simple Guide to a Residential Conveyancing Transaction (https://wallacerobinson.co.uk/2023/01/30/a-simple-guide-to-a-residential-conveyancing-transaction/) 

– Buying a Property (https://wallacerobinson.co.uk/2022/12/22/buying-a-property-101/). This guide is meant to be a very simplified overview of the process of buying leasehold property and if you are thinking about buying a property or wish to know any further information, please do not hesitate to contact us on 0121 705 7571 and ask to speak to our Property Department or email to enquiries@wallacerobinson.co.uk.  

Kateryna Knyazyeva
Paralegal – Commercial Department

This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.