Buying an Apartment

In the last few decades, apartments have become increasingly popular, particularly among the young and city dwellers, and there’s often little alternative if you wish to live in a city centre.

The advantages include the following:

• Increased security (provided it isn’t a basement or ground floor apartment);

• Lower property taxes than detached homes;

• A range of sports and leisure facilities may be provided;

• Community living with lots of social contacts and the companionship of close neighbours;

• No garden, lawn or pool maintenance;

• Fewer responsibilities than with a house;

• Ease and low-cost of maintenance;

• Lower cost than a house;

• The ability to live in a location where owning a house would be prohibitively expensive, e.g. a city centre.

The disadvantages of apartments may include:

• Excessively high service charges (owners may have no control over increases);

• Restrictive covenants and regulations;

• A confining living and social environment and possible lack of privacy;

• Noisy neighbours;

• Limited living and storage space;

• Obtaining the freeholder’s permission to make structural changes;

• No private garden;

• Expensive covered or secure parking (or no secure parking).

Most property in the UK is owned freehold, where the owner acquires complete legal ownership of the property and land and his rights over the property, which can be modified only by the law or specific conditions in the contract of sale. Most houses, whether detached, semi-detached, terraced or townhouses, are sold freehold. Most apartments in England and Wales (rare in Scotland) are sold leasehold, which includes some 3 million homes (mostly in cities and on the south coast), where you buy the property, but not the ground on which it stands. The freeholder owns the site and charges the leaseholder an annual ground rent; the leaseholder must also pay an annual service charge to the freeholder to cover the maintenance and repairs of the building and its common parts.

Length of Leasehold

The leasehold property is owned for a specified number of years, after which ownership reverts to the freeholder. Ownership is limited to the life of the lease, for example, 80 to 100 years for an old building and up to 999 years for a new building, unlike most other countries, where apartments or condominiums are owned outright under a system of co-ownership. Leasehold law means that you can pay a fortune for a home and technically still not be able to call it your own. At best, leaseholders pay only ground rent on their homes, but there can be restrictive rules whereby they can be forbidden to change their curtains, wallpaper or even keep pets. Abuses by landlords such as charging high ‘administration’ costs, presenting leaseholders with bogus bills and harassment are also commonplace.

A property can change hands several times during the life of a lease and when the lease expires the property reverts to the original owner (the freeholder). When buying a leasehold apartment, the most important consideration is the length of the lease, particularly if it has less than 50 years to run, in which case you will have difficulty obtaining a mortgage. Most experts consider 75 years to be the minimum lease you should consider. Leases often contain special terms and conditions, which should also be taken into account. For advice or information about leases, contact the Leasehold Advisory Service (020-7490 9580, www.lease-advice.org), who can also provide an application form for a Leasehold Valuation Tribunal.

Buying the Freehold

Since 1993 when the Leasehold Reform, Housing and Urban Development Act became law, leaseholders have had the right to buy the freehold between them, called a joint freehold, and many apartments are now sold not with a lease, but with a share of the freehold. However, there are strict rules regarding residence and the procedure can be long and the cost uncertain, therefore it’s essential to obtain advice from an experienced solicitor. Owners of a joint freehold can choose to manage the building themselves or employ a managing agent, although it’s generally better to have a managing agent as it avoids the disagreements that inevitably arise when owners manage a building themselves.

The 1993 act also made it possible for some leaseholders to extend their lease by 90 years and if the freeholder decides to sell the freehold he must give the present tenant right of first refusal to buy it. New legislation should extend leaseholders rights and alter the balance of power between freeholder and leaseholder. Under a new type of ownership for apartments called commonhold, leaseholders have the right to buy the freehold and establish a commonhold association to manage the common parts of a property.

For information contact the Leasehold Enfranchisement Advisory Service (6-8 Maddox Street, London W1R 9PN, (020-7493 3116), which provides free advice and maintains lists of valuers and solicitors who specialise in leasehold properties. If you sell a lease that was drawn up before 1996, you must ensure that your solicitor includes an indemnity in the contract that allows you to pass liability for any debts on to the new leaseholder, otherwise you could be held liable. This anomaly was

Types of Apartment

Apartments are common in London and other cities, but rare elsewhere, particularly in small towns, where they’re unpopular and tend to be budget accommodation. In the last few decades a wealth of old industrial sites and buildings have been transformed into chic urban apartments and loft penthouses, with stainless-steel kitchens and designer bathrooms. In recent years, stately homes, hospitals, schools, warehouses, mills, offices and factories have all been redeveloped as apartments. So called ‘mega-apartments’, i.e. huge open plan apartments, and loft apartments with double or triple height ‘cathedral’ ceilings are popular in London and other cities, as are penthouses, some of which sell for £5 million (£1,000 per square foot!) or more in London. They’re often an emotive purchase, where you pay dearly for the panoramic views.

You can also buy a shell apartment – which is literally a shell with no internal walls or fixtures and fittings – which needs to be fitted out. With this type of apartment you can usually obtain a maximum 75 per cent mortgage and need to take out another loan to fit it out. Fitting out costs around £25,000 to £50,000 for a 1,000ft2 (92.9m2) apartment.

Modern Apartments

New apartments (particularly in London) are invariably lavishly appointed, which is essential nowadays if they’re to sell well. The best apartments are beautifully designed and fitted, with developers vying with one another to design the most alluring interiors. These include designer kitchens complete with top quality appliances; however, although kitchens full of gleaming stainless steel and gadgets may look great, they aren’t always practical, well-designed or good for cooking. Other features include en suite bathrooms with separate showers and designer fittings; built-in wardrobes; telephone and TV points (including cable) in all rooms; fitted carpets; and ceramic floors in kitchens and bathrooms.

Luxury apartments may come with a menu of high-tech options, including discrete, multi-room audio systems, home cinemas, ducted air-conditioning/heating, state-of-the-art security and broadband connections in all rooms. Luxury apartments may also have air-conditioning or what may be termed comfort cooling, air-cooling or a climate-controlled, refrigerated-air system. Security is a key feature of most developments, which may have a 24-hour caretaker/concierge, CCTV surveillance and a security entry system with entry phones – some even have a video entry system that takes a picture of callers who press your apartment button when you aren’t at home!

Communal Facilities

Modern developments – so-called ‘lifestyle’ apartments – often have a leisure complex with a swimming pool and gymnasium, sauna, Jacuzzi and tennis courts, plus secure parking and landscaped gardens. Sports facilities are often the clincher in an inner-city development. Some developments also have an in-house medical centre, business centre, private meeting rooms for residents’ exclusive use, a restaurant and a bar.

Size

The size of apartments varies considerably, although new apartments are getting smaller, particularly in London. It isn’t uncommon to find purpose-built student studios (or micro-apartments) of less the 250ft2 (23m2) and one-bedroom apartments of 425ft2 (40m2). When comparing the price of apartments, always take into account their size (in square feet or square meters) which is a huge factor. Most experts recommend that you avoid studios, which are invariably tiny, cramped and difficult to sell – for a bit more money you can buy a one-bedroom apartment (most people want a separate bedroom). However, studios and small one-bedroom apartments are becoming popular among commuters who stay in town during the week and return to their country homes at the weekend. They’re more comfortable and cheaper than staying in a hotel and you also save money and time on travelling. Your apartment will also be a good capital investment.

Research

Before buying an apartment it’s advisable to ask the current owners about the development. For example, do they like living there, what are the charges and restrictions, how noisy are other residents, are the recreational facilities easy to access, would they buy there again (if not, why not), and, most importantly, is the development well managed? You may also wish to check on your prospective neighbours. An apartment that has others above and below it is generally more noisy than a ground or top floor apartment. If you’re planning to buy an apartment above the ground floor, ensure that the building has a lift. Ground or garden level apartments (along with penthouses) are more prone to thefts and an insurance company may insist on extra security before they will insure a property.

Note that upper floor apartments are both colder in winter and warmer in summer, although temperature-control problems will be offset by the panoramic views.

Cost

The cost of an apartment varies considerably from as little as £30,000 for a studio or one-bedroom apartment in a small country town to over £300,000 for a new two-bedroom, two-bathroom apartment in London. Prices in London, where many apartments are purchased by investors, have risen considerably in recent years and in 2004 were £600 to £700 per ft2 (£6,500 to £7,500 per m2) in prime areas. The price may include a year’s free membership of a health club or gymnasium, but bear in mind that amenities such as this don’t come cheap. There are often high service charges, e.g. £4,000 a year, although this may include hot water and heating. In London, cheaper apartments are available in the Docklands and south of the River Thames, where loft conversions can be purchased from around £250 per ft2 (£2,700 per m2). Apartments in cities are generally a good investment and have excellent letting potential, always assuming that the rental market doesn’t become saturated. The best-selling apartments are spacious with at least two bedrooms and good views.

Note that in popular developments, you must usually buy off plan long before a development is completed.

In an older development, you should check whether access to private grounds and a parking space are included in the cost. In new developments you must usually pay extra for a garage or a space in an underground car park. If you’re buying a resale property, check the price paid for similar properties in the same area or development in recent months, but bear in mind that the price you pay may have more to do with the seller’s circumstances than the price fetched by other properties. Find out how many properties are for sale in a development; if there are many on offer you should investigate why, as there could be management or structural problems. If you’re still keen to buy you can use any negative aspects to drive a hard bargain.

Service Charges

Apartment owners pay service charges for the upkeep of communal areas and for shared services, with charges calculated according to each owner’s share of the development. A proportion of the common elements is usually assigned to each apartment owner depending on the number and size of apartments in a development. Service charges may include the following:

• Garden maintenance;

• Cleaning (including roads and pathways), decoration and maintenance of communal areas and buildings;

• Caretakers, concierges or porters;

• Lift maintenance, entry phone and security;

• Lighting in communal areas and grounds;

• Water supply (e.g. for gardens);

• Pest control;

• Buildings insurance;

• Administration;

• General maintenance;

• Membership and upkeep of communal facilities such as a health club, gymnasium or swimming pool;

• Sink fund for major repairs.

Service charges may also include heating and hot water. Buildings insurance is provided by the freeholder, but you’re usually required to have third party insurance for damage you may cause to other apartments (e.g. due to a flood or fire).

Always check the level of service charges and any special charges before buying a community property. Fees are usually billed monthly or biannually and adjusted at the end of the year (which can be a nasty shock) when the actual expenditure is known and the annual accounts have finalised. If you’re buying an apartment from a previous owner, ask to see a copy of the service charges for previous years, as owners may be ‘economical with the truth’ when stating service charges, particularly if they’re high. Fees vary considerably and can run to thousands of pounds (£5,000 a year isn’t unusual) for luxury developments with a high level of amenities such as a health club and swimming pool. They may also increase annually.

An apartment block with a resident caretaker will have higher community fees than one without, although it’s preferable to buy in a block with a caretaker. If a management company is employed to manage and maintain an apartment block, the service fees are usually higher, but the building is also likely to be maintained better. High fees aren’t necessarily a negative point (assuming you can afford them), provided you receive value for money and the development is well managed and maintained. The value of an apartment depends to a large extent on how well the development is maintained and managed.

Disputes over service charges can be acrimonious and disagreements between owners and landlords should be heard by a Leasehold Valuation Tribunal (LVT) with a panel comprising a solicitor, a valuer and a third experienced person, and not by county courts. In the past, landlords have used threats of expensive court action to intimidate apartment owners into paying higher fees. Many landlords have increased their service charges significantly in recent years, which may bear little or no relationship to actual costs, and many people have been hit by high charges for major repairs. It’s essential when buying a leasehold property to take legal advice and have the lease checked by a solicitor.

Maintenance & Repairs

If necessary, owners can be assessed an additional service charge to make up for any shortfall of funds for maintenance or repairs. You should check the condition of the common areas (including all amenities) in an old development and whether any major maintenance or capital expense is planned for which you could be assessed. Beware of bargain apartments in buildings requiring a lot of maintenance work or refurbishment. Most developments have a sink or reserve fund to pay for one-off major repairs, which is funded from general service charges.

Ground Rent

Ground rent is a nominal rent for the land on which an apartment block is built and is usually around £100 to £200 per year. The lease should indicate whether the ground rent is fixed or can be reviewed after a certain period.

Covenants & Restrictions

Covenants are legally binding obligations of the freeholder and leaseholder to do or refrain from doing certain things. Restrictions are regulations governing how leaseholders are required to behave. They usually include such things as noise levels; the keeping of pets; renting; exterior decoration and plants (e.g. the placement of shrubs); waste disposal; the use of gymnasiums and other recreational facilities; parking; business or professional use; and the hanging of laundry. Check the regulations and discuss any restrictions you’re unsure about with residents. Permanent residents should avoid buying in a development with a high proportion of rental apartments, i.e. apartments that aren’t owner-occupied, although you may have little choice in London.

Private Gardens

Many London squares and developments have private communal gardens for the exclusive use of residents, which can add considerably to the cost of a property. London’s shared gardens date back to the 19th century when the landed gentry came up to town for the season. Gardens often have strict rules and regulations such as no animals (although you may be able to exercise your dog), ball games, barbecues, large parties and unsupervised children – their peace and tranquillity adds to their charm. Residents pay an annual fee and receive a key.

© Survival Books Limited 2005

“Buying, Selling & Letting Property” 2nd Edition, David Hampshire.
Reproduced with the permission of Survival Books Limited.

Further information on this topic can be found in “Buying, Selling & Letting Property” 2nd edition, by David Hampshire.

For extensive, annually updated information about buying, selling and letting property, you can purchase this book at www.survivalbooks.net