How to Spot a Problem Flat
At our next Seminar on 7th October 2015, one of the speakers, Alex Greenslade of Leasehold Solutions, will be giving a talk entitled, “How to Avoid Buying a Problem Flat”.
There are lots of issues to consider, but in this post I’ve jotted a few that come to my mind. (Alex will have many, many more of his tips to tell you about at the seminar).
How to Spot a Problem Flat
First, just finding out what the freeholder is like is important. Too many flat owners only find out the property is being managed badly and the freeholder or their agent is levying excessive service charges and asking for overpriced lease extensions when it’s too late – either when they have already spent a load on conveyancing fees, or even worse, after buying the place.
Start by asking other owners in the same block how things are managed. Try ringing doorbells of neighbouring flats (and make sure you are speaking to the owner not the tenant). Look for signs of poor management such as door bells that don’t work with wires hanging out of the sockets, mattresses dumped in the bin stores and abandoned and untaxed vehicles in the parking spaces. If the freehold owner sounds like a monster and you cannot buy them out of the freehold, walk away right now.
If there is a managing agent involved, are they any good? What do other owners on the block say about them? If they are awful you might be able to get rid of them and install someone more competent after you have bought. See also, point five, below for how the exact ownership and management arrangements effect what you will be able to do.
Think About Lease Length
Second, never buy a flat with less than 85 years on the lease without enquiring about how easy / hard it will be to get a lease extension or buy the freehold – and what the freeholder might want in term of cash for this (though he may, of course, change his mind).
Some mortgage lenders will not accept leases or lend if the lease is under 85 years, though with most lenders the bar is set at 75 or 80 years. If the lease length remaining is close to any of these limits, use this fact in your negotiation and starts the lease negotiation before you start to buy. Normally the seller will have offer to extend the lease, whether they want to or not (and Alex will explain the process for doing this).
Always keep in mind, that a short lease is the seller’s problem not the buyers – you can always walk away and buy somewhere with a longer lease. The seller, on the other hand, may struggle to sell it, especially to any buyer who needs a mortgage to buy it. So, you possess all the best cards in this negotiation. So use them!
Whatever the situation, it is always better to buy the freehold or extend the lease before the lease falls to under 80 years as you will have to pay what’s called the “Marriage Value” too, if under 80 years.
Find Out the Real Facts About Leasehold Length
Third, don’t believe what an estate agent says about any matter concerning the lease. Get hold of the lease document as early as possible and before you spend money on legal fees or surveyors, request the leasehold title from the Land Registry for just £3 (this will state length of term left and ground rent) and speak to a surveyor and your solicitor if you are not sure about anything.
Fourth, extending a lease or buying a freehold can be a complex process, so it may be better to buy a property with a long lease or share of freehold to start with. That is up to you, of course, but there may be significant value if some flat owners in the block have not bought into a past share of freehold scheme or extended their leases. Some property investors specifically hunt out such opportunities.
Is there a Residential Management Company
Fifth, even if it’s a share of freehold or a “tripartite residential management company arrangement” (i.e. there is a freeholder, a leasehold company and a managing agent appointed by the company), how the place is actually being ran will still matter.
For example, there may be a dragon or a Captain Mainwaring type figure who runs everything, someone who permits no debate and /or no involvement of others. Or there may be no succession planning – it could be that it everything is ran by an old chap who then dies or moves away, leaving no one to run things properly and no records of what he’s been doing.
Even if there is a residential management company (RMC) representing the leaseholders, are they good at hiring and firing the managing agents who look after the grounds and other matters? Do they do a good job of keeping the managing agents on their toes? (Many people don’t understand the difference between the RMC and the managing agents they appoint. They should be distinct and separate – but too often they are not and the roles get blurred and the managing agent gets too chummy with the RMC directors).
This is just a rough outline and my thoughts on what is a very big issue for anyone buying or selling a flat. If you have any comments to make, please do add a comment – and we will publish it here.
And come to the event in October to find out much more about how to spot and avoid duff flats.
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