Leasehold Charges – What to know

Buying a home is probably the biggest financial transaction of your life. There is pulling together the cash for a deposit, mortgage set up fees, conveyancing fees, stamp duty, moving costs. The list goes on. But it doesn’t stop there. When you move in there are ongoing costs with leasehold properties. It’s best to know what leasehold charges you can expect to pay before you buy.

When you buy, own or sell a leasehold property, many of your rights and obligations will be set out in your lease. One of your obligations may be to make certain payments to the person or the organisation responsible for managing your building. That person – the lease administrator – might be your landlord, a management company or a managing agent instructed by the landlord.

There are three types of leasehold charges: ground rent, service charges and administration charges.  You should understand what you are likely to have to pay for each of these before you exchange contracts on the property you are looking to buy. If you are buying on a new build estate you may also need to pay estate management charges to pay for the upkeep of shared spaces.

You may need to make regular payments of ground rent and service charges. Service charges are your contribution to the upkeep of any shared parts of the building or grounds.  In some cases, you may need to make one-off payments relating to your ownership and use of your property. For instance if you want to remortgage or make any alterations to the property. These are called administration charges.

Your solicitor or conveyancer will tell you about those payments. As they will impact your day to day outgoings, do check them if you are not 100% sure.

It is important when buying a leasehold property to ensure that all payments of ground rent, service and administration charges will be up-to-date when you complete on your purchase.

Although the lease may initially oblige you to pay a fixed amount of ground rent, it may also contain a clause which allows the landlord to increase the rent in years to come.  Ask your conveyancer to explain if there are any rent review clauses in your lease. And, check what this would mean for you.  If the calculations are complex, seek advice so that you are sure of how they work.

From 30th June, if you are buying a new property from the landlord, your ground rent will be zero because of recent changes to the law.   The new law also covers new retirement properties, but they have been given until April 2023 to comply. For shared ownership properties, landlords will only be able to levy ground rent on the share that the tenant does not own.

Service Charges

Service charges normally vary according to the amount that is spent by the Lease Administrator each year on the upkeep of the building as a whole.  This includes, for example, cleaning common areas or making repairs (such as painting the building or replacing the roof).

The charges may include buildings insurance, though, sometimes this is quoted separately.

Generally, the lease will require you to pay a fixed percentage or ‘reasonable proportion’ of the cost.

You should ask your conveyancing solicitor what items you will need to pay for. Check whether the lease administrator has any plans for expensive works for which you will be responsible. And, when payment for these will be due.

Compare conveyancing quotes from regulated and reviewed conveyancing solicitors that cover your area.

Administration Charges

The Lease Administrator is likely to charge administration fees if you ask for a service connected with your buying, selling or use of the property.  The following are examples:

1. Leasehold Property Enquiries. You will probably need to pay the lease administrator to provide the information required by your buyer and their lender when assessing the suitability of the title of the property.  Most conveyancing solicitors recommend the use of the LPE1 and LPE2 forms because it is endorsed by both the legal and leasehold industry.
2. Licence to Assign. It is possible that your lease requires you to obtain a license from the Leases Administrator to sell the property.  This will often involve them ‘vetting’ the new owner to make sure they meet the Lease Administrator’s criteria. They will charge a fee for this.
3. Exit or transfer fee. Some leases, usually in retirement flats, may also include an ‘exit’ or ‘transfer’ fee usually expressed as a percentage of the value.

To ensure you are aware of any such administration costs, instruct your conveyancing solicitor to review your lease before you market the property.  If you tell them about any changes you have made, they can also highlight if you need to obtain the Landlord’s consent to the changes before you sell the property.  A buyer will want to see that those consents are in place. It could add delay or cost to the sale if they are not.

When buying a leasehold property, there will be additional conveyancing costs because of the extra legal work involved. For instance your conveyancing solicitor will need to check the lease and liaise with the lease administrator to get further information about the service charge or management details.  You can find out more about the costs of leasehold conveyancing that can be anything from £100 to £1,000.

1. Deed of Covenant. Some Leases require that you enter into a Deed to confirm that you will be bound by the terms of the Lease.
2. Notice of Assignment and Charge. The lease administrator will require that notice is served on them of the change in ownership and mortgage lender. This is so that they can make sure that they have your contact details and can provide you with information about their plans and charges for the upkeep of the property during your ownership.
3. Certificate of Compliance. This is a document that the lease administrator provides to confirm to the Land Registry that the requirements in the lease for the change in ownership have been complied with.
4. Stock or Membership Transfer. If you will be required to become a member of the management company, then some administrators charge a fee for transferring the share or membership in the Management Company into your name.