Buying a home for the first time can be a minefield. This is the second in our series where we hope to guide you through the key features of a property purchase >>
Thinking of buying an apartment as your first home?
Many residential properties in London and its surrounds comprise purpose-built blocks of apartments or large houses converted into apartments. In the last 10 years, most major cities and towns have seen an increase in the development of such properties.
From a practical point of view, such homes are ideal for singletons or couples as most of the purpose-built developments provide a high level of compact accommodation and tend to be very economical in terms of lighting and heating. Best of all, there is no gardening!
Having said that, there are certain matters you need to research that are not relevant to a conventional house. These particular enquiries should be investigated, to some limited extent, before you start the main process of making your mortgage application and appointing your legal representative.
1. Is the flat leasehold or freehold?
Straight to the point and without getting too technical, you should avoid a property that is freehold. In practice, there are very few apartments that are freehold (although owning
a part of the separate freehold is quite acceptable and quite common).
There is a very good reason why apartments are normally leasehold. In essence, it is far easier to enforce positive obligations on the part of the leaseholder than it is against a freeholder. Most leases will contain ‘positive’ obligations to maintain and repair the flat and to contribute towards the maintenance and repair of the whole block. The lease will also contain various ‘negative’ obligations such as ‘not to use the property as other than a private dwelling’.
Both of these positive and negative obligations carry the risk of the lease being forfeited by the freeholder should the leaseholder not comply with those obligations. Therefore, a leaseholder acting in contravention of their lease to the detriment of the other leaseholders may find themselves the subject of an action for forfeiture of the lease if they continue to disregard their obligations. Clearly, this would be beneficial to the other leaseholders who may be suffering because of the actions or negligence of a certain leaseholder within the building.
Most, if not all, lenders will consequently view a freehold apartment as poor security. The estate agent should have all this information to hand before starting to market the property, so it is quite easy to find out if the property is leasehold.
2. Service and maintenance charges
When you own an apartment in a purpose-built block or part of a large house, the lease of the property will undoubtedly be structured to impose an obligation upon the leaseholder to pay towards the ongoing maintenance and repairs costs of the building. This is more commonly found in apartments that are part of a large block where it is usual to collect the allocated service charge on a quarterly basis.
Your legal representative will be making detailed enquiries with regards to the management issues of the development. It is also advisable for you to determine, via the estate agents, what the last year’s service charges were for the property and whether or not the seller has received any information from the management company or the freeholder to suggest that in the near future there will be a capital demand (a lump sum demand) for work required to be carried out on the property.
3. How long to go?
It is very important to establish how long is left on the lease. This is something that could have an impact on both the property being considered as suitable security by your lender and also the future saleability of the property.
Any lender will look at the term of the lease and consider whether there is a sufficient number of years left after the end of the mortgage term. Many lenders will insist on there being at least 75 years of the term to run. There are statutory obligations to enable leaseholders to acquire a further interest in the property by way of an extended lease. However, these provisions are rather complicated and are not discussed in this article.
In many cases sellers are faced with the problem that their lease is short and is potentially putting off buyers, as result, they will look to approach the freeholder with a view to buying an extension of the further lease. So if you come across a situation where you find that the lease of the property is relatively short, it would make sense to approach the seller at the very outset of the transaction to see if they are prepared to pay for the term of the lease to be extended.
4. Ground rent
A lot of older leases have static ground rent. This means that the ground rent remains the same throughout the term of the lease. In reality, the cost and the value of the annual ground rent decrease over time and as inflation eats away at it.
However, there are many modern leases that state that the ground rent will be increased after a certain number of years and then continue to be increased at certain intervals. Again, it would be sensible for you to establish if the lease has these provisions so that you are aware that the ground rent being quoted may increase.
5. Back to the beginning
In the last issue, we broke down the conveyancing process into 12 stages. We shall look at some of these stages in more detail.
We shall assume that you have chosen the property you wish to buy, have made your offer and that your offer has been accepted. However, it is important to remember that the offer to buy and the acceptance by the seller does not create a legally binding contract between the parties.
The law requires a formal exchange of contracts to take place between the parties before the contract can be said to be binding on either party. Therefore, the ability for either party to withdraw from the transaction, without any liability to the other party, is always a possibility.
In reality, you would not want a situation where you were legally bound by your offer, unless that offer was subject to certain safeguards such as being able to obtain a mortgage where the lender accepts the property as good security. Furthermore, you should always make sure you obtain a proper valuation and survey report on the property before proceeding to commit yourself.
In the event that your survey or valuation exposes problems with the property or its valuation, you are perfectly free to renegotiate both the price and the cost of repairs to the property.
6. Issues with valuation of the surveys
It is very unlikely that a detailed survey will come back to you without some adverse comment on the state and condition of the property. There is probably no such thing as a perfect property let alone a perfect second-hand property. It is about identifying what is and what is not a major issue and distinguishing it from things that are merely cosmetic. Your survey is also likely to highlight any particular issues that the surveyor considers should be referred to your legal adviser. There is normally a section within the report that enables you to refer the matter on to your legal adviser. These will often involve things such as rights of way and alerting the legal adviser to the fact that there has been additional building work on the property (such as extensions, conservatories, etc) where the issue of planning consent and building regulation approval needs to be considered.
7. The pre-contract enquiries
Once the estate agent has issued a memorandum of sale to both your solicitor and the solicitor acting for the seller, the seller’s solicitors will prepare a contract for the sale of the property. This will be submitted to your solicitor together with evidence of the title to the property and a set of forms containing standard questions concerning the property that the seller is obliged to complete, along with a fixtures and fittings form. It is likely that you will receive copies of these forms from your solicitor prior to signing the contract.
The form the seller completes is commonly known as the sellers’ information form. Your solicitor must be able to consider if the title to the property appears to be marketable as well as ascertaining if there are any specific matters concerning the use and enjoyment of the property and work carried out to the property that requires further investigation.
One of the main questions asked in the property information form is whether or not certain works have been carried out to the property. These include electrical work, work involving the installation of windows or the installation or maintenance of gas appliances. These all require (depending upon when the work was carried out) certain guarantees and certificates to ensure that the work was carried out by a competent contractor.
When you come to receive your contract report from your solicitor, it is likely that you will also receive copies of any certificates and guarantees that are available. This documentation will also normally include fixtures and fittings list showing which items are to be left in the property, which are to be removed or available for separate sale. Your legal representative is likely to raise any technical enquiries that he has, and these will invariably be dealt with between the respective solicitors.
The point of doing this is to ensure that, prior to signing the contract, you have a full report and understanding of what you are purchasing from a legal point of view.
8. Pre-contract searches
It is likely when you instruct your solicitor that they will ask for a payment to cover the cost of the solicitor obtaining the results of searches against the property. Invariably this would include a local authority search and may include other types of searches, most commonly an environmental search, chancel check search, drainage and water search and in certain areas a coal authority search.
These searches give valuable information to the legal representative who is able to interpret them and make further enquiries should any issues arise from the information that is supplied by them. Again, it is likely that your legal representative will report back to you on the results of the searches that have been received.