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.