The minefield of buying a flat

The minefield of purchasing a flat


If you are thinking of buying a flat, you need to be careful because there are a many potential legal pitfalls which can complicate the purchase or even cause it to fall through after you have incurred legal and other associated costs on the transaction.

In particular, you should check the following matters:

The amount of the ground rent

Mortgage lenders specify that ground rents have to be reasonable. Each lender has its own requirements, but as a rule of thumb, if the ground rent is more than 0.1% of the purchase price, you should check with your mortgage lender that the ground rent is acceptable to it.

If the ground rent is above, or could in the future exceed, the sum of £250 (outside London) this causes a further complication relating to how, in law, such leases are treated under certain legislation.

Usually, this type of problem can be overcome by purchasing a special type of insurance policy, which is normally available for a one-off cost of (roughly) £100 to £200.

The way the ground rent increases over time (i.e. the rent review pattern)

Historically ground rents were fixed low rents with no review or reviews at infrequent periods during the term. In recent years, landlords have become more ambitious with ground rents, which they see a source of future income from the property.

This can cause problems selling the property if the frequency and amount of increase in the ground rent is considered unreasonable.

Mortgage lenders provide that leases may contain provisions for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable.

Generally speaking, if the rent reviews take place not less than every 15 years, and increase is in line with the Retail Price Index then this will be acceptable, but if the reviews take place less than every 15 years, and the ground rent doubles or has another type of escalation clause which is unreasonable or unclear, this could be a significant problem and the seller may be asked to approach the landlord to vary the terms of the lease, and there is no obligation on the landlord to agree such variation. At the very least, this will cause a material delay to the transaction.

The length of the lease remaining (‘the term’)

Residential long leases are traditionally granted initially for terms of 125 years or 999 years.

A residential lease is regarded as becoming short when it has less than 80 to 85 years remaining.

Tenants have a statutory right to extend their leases, although the landlord will be entitled to a premium, the level of which will depend on a number of factors and specialist valuation advice would be needed at the appropriate time, but it can be a significant amount of money.

The way the premium is calculated changes once the lease has less than 80 years remaining, which causes the amount of the premium to accelerate more quickly.

When purchasing a flat, you need to think about how long you are likely to own the property for, and what term might be left when you come to sell it in the future. Ideally it would not have less than 95 years.

Service charges

As the owner of a flat you will be required to contribute towards the cost of repairs and maintenance of the common areas/main structure of the building and its insurance. Usually managing agents are appointed to handle the day-to-day management of the building/estate and their costs will form part of the service charge you pay.

You should check how much the service charge is at an early stage and enquire how it has changed during the seller’s ownership, and also whether the seller is aware of any significant items of expenditure proposed in the coming year.

Legislation is in place which requires landlords to run a consultation procedure if it anticipates incurring service charge costs of more than £250 per resident on any one set of works, so the seller should be aware of any impending costs.

Fire safety

As you may appreciate, fire safety in buildings containing flats is a significant area of concern, ever since the Grenfell disaster. The Building Safety Act 2022 has been passed by Parliament to address various matters connected to fire safety in such buildings.

The Act is complicated, but generally speaking, if you are buying a flat in a building of more than 4 storeys it is likely to be affected by the Act and this will complicate the conveyancing procedure. There are statutory notices that must be served by the seller and the landlord and it is important to obtain copies of these and ascertain what they state.

There is also separately the issue of whether the building has unsafe cladding. A system has been developed to ascertain whether flats are affected by unsafe cladding by the Royal Institute of Chartered Surveyors (RICS), which has created the “EWS1 certificate” procedure (external wall cladding certificate) for buildings containing flats.

If a building requires a certificate and there is not one, it makes the flats in the building unmarketable as mortgage lenders will not lend against the flats, for the purpose of obtaining a mortgage.

You should check at an early stage if the building needs an EWS certificate, and if so, if one has been issued and what it states.