3 things to consider when buying a leasehold property

Belgravia is often described as regal London dressed in its Sunday best. This exclusive area’s classical architecture, white stucco properties, garden squares characterise Belgravia’s quiet residential streets that are within walking distance of the exclusive retail centres of Knightsbridge, Sloane Square and Chelsea.

This helps explain why property for sale in Belgravia remains in high demand. Many of the freehold houses for sale in Belgravia have undergone significant modernisation that has turned them into some of the most desirable homes in prime central London.

The property mix in this part of prime central London, however, also includes luxury new-build apartments and conversion flats. Unlike, the majority of houses in Belgravia, which are sold as freehold properties, flats in London are almost invariably leasehold property.

When buying leasehold property in Belgravia, purchasers are advised to consider three factors…

1. Lease length

No two leases are the same, but many granted for new-build properties run for 99 years, although their length is now more commonly 125 years, while some developers provide 999-year leases on apartments.

As the lease gets shorter, the leasehold property reduces in value long before the agreement is due to expire.

This is, in part, because once a lease has less than 80 years remaining, it becomes more expensive to renew.

Under the Leasehold Reform, Housing and Urban Development Act 1993, the landlord is entitled to half of the increase in the value of the property when a lease with less than 80 years to run is extended.

This is called the marriage fee because when the value of the property and longer lease are combined (or married together) they exceed the combined value of the separate entities.

Not only that, potential purchasers of flats with leases of under 80 years remaining who use a mortgage to part-fund the transaction could find it harder to obtain a loan on the property, which is highly likely to devalue their sale value.

2. Ground Rent

This is the fee payable to the landlord on an annual or half-yearly basis. While it is usually a token payment in the region of £200 or £300 a year for properties in Belgravia, and in some cases zero, some landlords can charge thousands of pounds each year.

Beware that the landlords of many new-build developments in Belgravia are now inserting clauses into the leases they provide that state the ground rent will increase every 10 years.

3. Service Charges

To cover the costs of maintaining the fabric of the building and the shared areas of the development, the landlord or managing agent will impose a service charge.

While fees vary depending on the size of the development or value of the flat, some service charges include contributions to a reserve or sinking fund that is used to cover large one-off bills.