7 October 2024
Leasehold Properties – Ground Rent and Service Charge
Leasehold Properties differ from Freehold properties as they often come with further financial obligations. Two of these obligations are ground rent and service charge payments. If you are looking to purchase a leasehold property it is essential that you understand these further charges.
What is a Leasehold Property?
To own a leasehold property essentially means that you own the property for a fixed term only and not the land which it is built upon. The land itself is owned by the freeholder (otherwise referred to as the landlord) and your ownership is dependant on the period of time granted in the lease. Once this period comes to an end, the property reverts to the freeholder and you either have a decision to leave the property, extend the lease or in some instances buy the freehold. A lease with less than 80 years unexpired will generally not be acceptable to a mortgage lender.
Ground Rent
Ground rent is a payment which as the leaseholder you will need to pay to the freeholder to live on the land which your property stands. The amount payable will be agreed within the lease and will be paid typically in intervals throughout the year. You must therefore ensure that as the purchaser you can afford these payments as well as your mortgage/other bills, and that the lease does not include unacceptably high rent reviews.
Service Charges
Service Charges are again a further charge that will be paid by the leaseholder towards common expenses.
A few examples of the things your service charge payment can cover are:-
• Maintenance of communal areas (e.g., hallways, gardens)
• Repairs to any structural issues
• Cleaning and waste removal
• Building insurance
• Any Security services.
• This charge may also include an additional sum which can be put towards a reserve fund in case any future major repairs need carrying out.
These payments again will be requested at intervals throughout the year and will be laid out in the lease what it will cover. It typically will vary from year to year depending on the expenses incurred by the landlord or its managing agents.
As Leaseholds can be very complex it is best to seek further advice from your solicitor in relation to the precise terms of the lease and the payments you will be expected to make once you purchase your property.
Please contact our Conveyancing team for more information on this topic.
Article written by Jessica Fisher, Trainee Solicitor.