I'm a first time buyer and would like to buy a leasehold flat, but a friend of mine has cautioned me saying there can be huge hikes in ground rent and generally the costs are hard to predict. Is she right? How can I be sure what the charges will be over the next few years?
When you buy a leasehold flat or house, your ownership of the property is governed by and subject to the terms, conditions, covenants and easements set out in the lease. You will become a leaseholder, and the ambit of your ownership is set out in the lease. The lease will determine all factors of your ownership, of the property, and includes the rental provisions, and what your service charges will include. It is so important to read the lease, and understand what the ramifications are in it which pertain to the property.
The rent is set out in the lease, and cannot be varied unless the leaseholders agree. The landlord cannot out of hand vary the rent payable, unless it is varied hand in hand with an extension of the lease term. All leaseholders will have to agree to this. Sometimes the rent in the lease provides for it to be increased every so many years, and the increased rental amounts are stipulated in an escalation clause in the lease.
Services charges are not as simple. The lease should contain a schedule/clause which sets out what the duties and costs are comprised of in the service charge obligations. However, as you can imagine, the lease cannot give an idea of what this actual cost is. The service charges vary, depending on what works may need to be carried out to the property, what the annual costs have increased to with inflation. However the Landlord is obliged to give you an annual service charge budget well in advance so that you will know what the costs are going to be annually. Unfortunately there is nothing in a lease that can give you any definite indication as to annual cost, only what the obligations are that the cost will pay for.
It is not usual to own a leasehold property, many properties have this form of ownership, and it should not put you off unduly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.