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10 questions to ask before buying leasehold property

By Kay Keam - 28 Apr 2014

Recent reports tell of owners of million dollar properties around One Tree Hill abandoning their homes. This highlights the potential pitfalls of buying leasehold titles. In these instances the annual rent has suddenly risen, sometimes by 800% or more. This is as a result of rent reviews which are carried out at set times under the lease.

As lawyers we regularly get asked about the difference between leasehold and freehold titles (a wise question to ask during due diligence). The main difference is that as a lessee you are strictly bound by the contractual terms of the lease, which will affect your use and enjoyment of the property. These obligations are in addition to all local council requirements and your obligation to adhere to the terms of any encumbrance registered on the title.

10 things to consider before buying a leasehold property

  • What is the current rent and how often is this reviewed? Also what is the rent review formula and do you have a say in the process?
  • Is there a requirement to refurbish during or at the end of the lease and what is the likely cost of this?
  • When does the term of the lease expire and do you have the right to renew the lease?
  • What are the maintenance requirements and the likely cost of maintaining?
  • What outgoings are charged to the lessee (in addition to rent)? For example are you liable for body corporate levies?  
  • Any other hidden costs?
  • Do you have to get consent from the lessor to carry out any building works/renovations to the property (in addition to any building/resource consents from local council)?
  • Are you able to remove the improvements and is there compensation for improvements at the end of the term of the lease?
  • Will you be liable during the entire term of the lease even if you sell the property?
  • Are you able to purchase the freehold and if so what is the cost?

The above is not an exhaustive list and every situation and lease will be different.  As property lawyers, we look closely at (and point out to you) not only the main terms of the lease, but also any hidden costs, and those further provisions which will prohibit you from achieving what you want from your property. 

Contact one of our property team if you are in the market for a property and wish to discuss the above in more detail.

Contact

Kay Keam

 

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