Buying a Leasehold Property – the Hidden Costs

Posted on: December 7th, 2017

Buying a leasehold property such as a flat can be a daunting prospect, and can be made more so when you hear terms like ‘service charge’ , ‘ground rent’ or ‘management packs’ especially if you have never brought a flat or are a first time buyer.

It is usually the case that during the course of the transaction, additional fees will be highlighted to you that you may not have been expecting or even budgeted for.  These fees may not have been quoted to you at the beginning of the transaction as your solicitor would simply not know until they have been provided with a copy of the lease and information from the Landlord/Management Company or their Managing Agents. 

Below is a brief outline of some of the common fees that you may see as a purchaser:

  1. Notice of Transfer Fee – upon completion the Landlord/ Management Company may require confirmation of your details as the new purchaser to ensure that their records are updated and they have the correct details for future service charge/ground rent invoices.  This is served in the form of a notice which will be prepared by your solicitor
  2. Notice of Charge Fee – as above, the Landlord/Management Company require confirmation as to any new mortgages or legal charges that have been obtained by you and will be registered against the property.  If required, the lenders details can be provided for the buildings insurance policy.  Again this is served in the form of a notice which will be prepared by your solicitor
  3. Deed of Covenant – this is confirmation that you will accept and abide by the covenants (in simple terms restrictions on the use of the property) contained within the lease.  These should be outlined to you by your solicitor and a copy of the lease provided for you to review.  You will be asked to sign the deed in the presence of an independent witness and return this to your solicitor.  The Landlord/Management Company will charge a fee for either preparing this deed, accepting the deed or both.
  4. Certificate of Compliance – it is sometimes the case that there will be a restriction of the property title (the deeds) that prevents you being registered as the new property owner unless a certificate is provided by the  Landlord/Management Company to confirm that you and your solicitor have done everything they should in accordance with the terms of the lease. This would include serving the notices as above and ensuring any deed of covenants required have been signed and provided to them.
  5. Apportionments of Service Charge and Ground Rent – it is usually the case that service charge and/or ground rent are paid in advance for the year either once a year, 6 monthly or quarterly.  This will mean that for the current year the seller would have paid these and you may be required to reimburse the seller from the date of completion to the next payment date(s) on which service charge and/or ground rent is due.  From the next payment date you would then become responsible for any service charge or ground rent due.
  6. Service Charge Deficits – as the service charge is paid in advance, when the accounting year ends, the Landlord/Management Company will prepare final accounts to show the actual expenditure for the year vs the amount of service charge collected.  If the amount spent exceeds what was collected then the property owners may be asked to pay the difference (the deficit) and as the new property owner you will be asked to provide this even though this may relate to the seller’s period of ownership.  You can ask your solicitor to try and agree a retention with the seller’s solicitors which would hold back a set sum for a specified period of time.  This sum can then be used to pay any deficit that becomes apparent from the seller’s period of ownership.  There may be additional legal fees connected to the agreement of a retention and you should check this with your solicitor.
  7. Consent to Alterations or Letting – The Landlord/Management Company may charge a fee if you intend to carry out works to the property or intend to let it to a third party under a tenancy agreement if the lease states that the Landlord/Management Company must consent before either is undertaken.  You should ask your solicitor specifically if you have any plans for either of these and they can review the lease or try and obtain further information for you.

The above fees relate specifically to when you purchase, but there are also fees payable when you come to sell.  The most common fee is the payment for a management pack which is information provided by the Landlord/Management Company including (but not limited to) copies of service charge budgets, previous years accounts, buildings insurance and fire risk assessments.  There are also set enquiries that the Landlord/Management Company would answer.  A buyer’s solicitor would require this information to complete their investigation of the property.  Each Landlord/Management Company can charge for this information and if your service charge and ground rent is collected separately by two different companies, you may be asked to pay for two packs.

In conclusion, it is also worth having a small contingency when budgeting your finances and purchasing a leasehold property for these extras and enquire with your solicitor if you have any concerns.

Genni Tipping is a Solicitor in the residential property team at Coffin Mew.