For first time buyers this will come as a shock but if you purchase a freehold property you will be charged rent and service charges. How much can you expect to pay?
It may come as a shock but most flats, apartments, maisonettes or any property that makes up part of a building will be freehold and therefore be liable for annual fees to the freeholder or landlord of the building.
To get a better understanding of what a freehold property is you have a read of our article on the difference between leasehold and freehold but in short, properties that come as a part of a larger building such as a flat are generally leasehold which means you may own the flat but the freeholder owns the land, building and communal areas that come with it.
The freeholder is ultimately responsible for the building, communal areas and land that your flat is on. This means they need to maintain any communal areas such as the garden, driveway or even the roof. Should there be any work needing doing, they will have to organise it and (usually) pay for it.
Since there is a freeholder that owns and maintains and pays buildings insurance for all these parts that are integral to your flat you will need to pay them fees as you might now expect. This is known as service charge and usually comes as an annual fixed fee.
This is probably a shock but you most likely will have to pay your freeholder ground rent too just for having a flat on their land. They own land and building, you have effectively "leased" the use of a flat on their property therefore you must pay them rent that should be mentioned in that lease.
Notice I have said "usually" a lot? Really, these costs are down to each individual leasehold property so you must check the lease before buying. You would be crazy not to do so of course as you could be buying into an extortionate set of rates - as well as other strange restrictions. To save the irritation of finding high rent and service charges late in the transaction make sure you ask the seller or estate agent about these fees before progressing with a sale.
Most of the time you will be expected to pay ground rent and this should be detailed in the lease. Sometimes it will not be mentioned or prices detailed in which case it may just be a part of the service charge. The service charge is usually the biggest charge and will cover all maintenance to the building and the cost of insuring the building. Sometimes, maintenance costs will come as and when, e.g. you do not pay service charge unless there is a need for a new roof in which case the cost will be split between leaseholders.
There can sometimes be a trap in the service charges. Examples are of the freeholder not necessarily getting the best deal for buildings insurance such as getting an expensive one that pays them great commission or a having maintenance work carried out by a friend that will charge double in exchange for a kick back knowing that you will be paying for the expensive work anyway.
Check with the agent, seller or even freeholder to get as good an idea of the service charges as possible. Maybe even speak to other flat owners in the same block for an unbiased answer.
Ground rent is usually the smallest charge and you can expect an annual charge of around £100-£250. It is the service charge you need to look out for which can cost up to an annual fee of £1000 for even relatively normal flats. It can depend on the property too, if there is a small number of flats with beautiful communal gardens including a tennis court expect the service charge to be a lot higher!
It may seems like this is terrible and a cause to back out of a buy but it isn't really. If you are looking to buy a flat over a house then leasehold is a reality that comes with it. On the upside leasehold properties are usually significantly cheaper than freehold and since you are now aware of the costs that come with leasehold properties you can plan for them by putting aside some money each month for your annual charge.