Buying & Selling Leasehold Properties
Adam Tozer, Residential Property Paralegal
In the current property market, Leasehold properties are in high demand as they are often more affordable so attract First Time Buyers as well as those downsizing. A Leasehold is commonly an apartment or flat, but can also be a house in some instances. Your Estate Agent should advise you on whether a property is Freehold or Leasehold on their sales particulars.
There is certain information about Leasehold properties that not all potential Purchasers and Sellers are aware of when they start looking to purchase or sell a Leasehold property that would be useful to know.
LPE1 form- What is This?
The LPE1 is paid for by the Seller when the transaction begins to the Landlord/Management Company.
Whether you are selling or buying a Leasehold property, the Landlord must complete a form called the LPE1 form which stands for Leasehold Property Enquiries. The Landlord (the person or company that owns the Freehold for the building) or Management Company (or managing agent instructed to act for the Landlord) must complete this form to provide the Buyer with information about the running of the building. This will include information on Service Charge, ground rent, buildings insurance, going maintenance and repairs, potential future works and notice fees. All of the information involved in this form is important and must be provided before proceeding towards exchange of contracts. The Seller’s Solicitor/Conveyancer must provide the Buyer’s Solicitor/Conveyancer with the LPE1.
The Landlord/ Management Company will often charge an admin fee in order to complete this form, this can often range from £50- £400 and this must be paid at the start of the transaction by the Seller. If the flat owners/residents are jointly the freeholder then they may not make a charge if managed by the residents and any charges made are entirely at the discretion of the Landlord. If you are selling, you can check these costs with your Landlord/Management Company before you proceed so that you know what these costs will be in advance.
An LPE1 pack is valid for 6 months. After 6 months a Seller may be asked to get a new pack so this can incur an additional cost.
Notice Fees – What are They?
Notice fees are paid by the Buyer on completion.
When purchasing a Leasehold property it is mandatory that on completion the Landlord/ Management Company is served notice by the Buyer’s Solicitor/Conveyancer to confirm the details of the new owner. The records are updated with the name, address and contact details of the Buyer so that the Landlord/Management Company can assign the new owners an account and begin to collect the Service Charges and ground rent. It is important to keep these records up to date so that as an owner of the property you also get notified about future costs, maintenance and repairs, and other issues within a building.
Unless there is a clause in the Lease confirming how much the notice fee should be, most Landlords/Management Companies choose to charge their own fee for this, it can range from £20-£300 on average so you need to be aware of this when you are budgeting to purchase a Leasehold property.
Depending on the Lease, it can often be a requirement of the Lease that all Buyers enter into a Deed of Covenant. This document confirms that the buyer will abide by the terms within the Lease. This must be signed prior to completion and sent to the Landlord/ Management Company on completion along with the fees that they charge for this- again, this tends to be between £20-300.
It is important you do read the report issued to you by your Solicitor/Conveyancer and check the fees you will be expected to pay on completion. A list of fees is provided in the LPE1.
Service Charge & Ground Rent for Leasehold Properties
These charges are paid by the Buyer from completion.
A Service Charge is often paid in larger developments involving two or more Leasehold properties and is charged by the Landlord/ Management Company for any shared services such as buildings insurance, repairs, maintenance and upkeep of the common parts – for example, in a block of flats each flat owner will contribute towards the upkeep of the roof, foundations, hallways, communal gardens etc.
The percentage of Service Charge paid is based on the number of properties in the building, but it should always be a fair proportion of the total costs.
You can usually pay Service Charge monthly or annually, but they must be paid on time when demanded by the Landlord/Management Company.
The Ground Rent is a payment to the Landlord/Management Company – this is an additional payment that is not in return for any services. This can be a fixed amount charged annually or an amount that increases over time (an Escalating Ground Rent). We usually expect to see an annual Ground Rent levied at £10 – £300. If the Ground Rent is above £250 or is and Escalating Ground Rent, this can lead to the need for additional legal work to secure a deed of variation or indemnity insurance policy.
Some Ground Rents are not paid and some are a peppercorn – this means no Ground Rent is payable.
Your Estate Agent will be able to find out the Service Charges and Ground Rent for a property you are considering buying a Leasehold property, so do ask for this information before you proceed with your purchase.
Finally, on completion, it is common practice for the Buyer to re-imburse the Seller for the Service Charge and Ground Rent if they have paid for in advance. Your completion statement provided by a Seller and a Buyer’s Solicitor/Conveyancer will confirm these amounts once a completion date is agreed.