09 Mar 3 key things to expect when selling / buying Leasehold Property
Buying or selling a home is a big decision, and can easily rank as one of life’s most stressful experiences – there’s all the paperwork, viewings, solicitors fees and chains to keep track of, and that’s before you throw in the added complexity of a leasehold, which comes with its own requirements.
But with over 4.5 million leasehold properties in the UK, most of them located in the cities where we live and work, buying or selling one is a process you’re increasingly likely to encounter. With that being the case, there are some key differences with freeholds that you’ll need to know about.
Service Charge Retention
If you’re selling your leasehold property, because there is a service charge involved you will need to pay something called a ‘Retention’. This can be held by your solicitors, but it is also increasingly standard practice (including here at Blue Property) for it to be paid directly to the managing agent for safekeeping in a designated client account, as they are responsible for administering your service charge account.
In the simplest possible terms, a Retention is effectively a deposit that you as the seller pay to cover your share of any service charge overspend that becomes apparent later in the year, after you have left the property.
As you may know, at the end of every year the managing agent will certify final accounts for that period to confirm what was spent on services and maintenance. If it becomes apparent that more money was spent on services than was initially budgeted for in the service charge, then the total overspend would be divided up among the contributing properties.
This proportion of the total overspend (your property’s share) is then divided between you and the new owner on a pro-rata basis, with this final amount deducted from the Retention you paid when selling. Any Retention amount left over would then be refunded to the seller.
The idea behind the Retention is mainly fairness, in that it ensures the new buyer of the property isn’t left to pay the entire overspend for any year, when they may only have owned the property for a few weeks.
There are obviously occasions where there is no overspend at the end of the year, in which case the full Retention amount is refunded to the seller in full – so don’t worry, if there is no overspend, you aren’t going to lose the money.
Leasehold Property Enquiries
When selling a leasehold property, there’s a strong likelihood that you’ll be asked by any prospective buyer to supply a Leasehold Property Enquiry form – otherwise known as an LPE1.
A standard form when it comes to leasehold sales, the LPE1 is an eight-page document that covers key information on the property, its repair condition, the service charge costs, and more. LPE1’s are essentially a ‘buyer’s guide’ to your property, giving the prospective purchaser what they need to know in detail. They also often come with accompanying documentation, although this varies by property – usually included are things like buildings insurance certificates (confirming that the property is covered), as well as fire risk assessments for communal areas, and projected service charge budgets.
If all this sounds out of your depth and you have no idea how to provide it, don’t worry – the LPE1 will be supplied and completed by your managing agent, as they are best placed to answer all of the various questions that the LPE1 asks over several pages.
Notify your managing agent (preferably in writing) that you are selling your property and need an LPE1, and they will be able to advise you of any fee for the work (this can vary), as well as turnaround times to return it to you/your solicitor. Bear in mind that although you don’t legally have to provide an LPE1 as a requirement for the sale, potential buyers are unlikely to complete a purchase without one.
Filing Completion Paperwork
If you’ve bought a leasehold property (congratulations!), then in addition to the usual paperwork, you’ll also need to serve certain documents to the managing agent and/or freeholder so that they can update their records, and make arrangements with you for the payment of service charges and/or ground rent.
Completion paperwork generally consists of a signed Deed of Covenant (which confirms you abide by the terms of the original Lease), a Notice of Transfer/Charge (confirming your full name as the buyer, full contact details, and confirmation of your mortgage provider), and an application to join any management company (if applicable – the process for this is confirmed in the LPE1).
Your managing agent will confirm any fees required for filing these, and will respond by sending a Certificate of Compliance once all of the above have been received.
Although it can feel like unnecessary extra work and costs, filing these documents is vital for legal completion of your purchase. In order for your ownership to be registered at the Land Registry, a Certificate of Compliance is required from the managing agent/freeholder confirming that all of the relevant requirements have been carried out.
If you’re the owner of a property managed by Blue Property and need more information, or you’re thinking of buying one, our friendly Sales Team are on hand to guide you through the process as smoothly as possible – get in touch and speak to a member of our team today.