Leasehold property

[bdh198]

I have recently been looking at a one bedroom buy to let investment in Portsmouth. One of the properties I have viewed seems to fit the tenant market. It's a leasehold property situated above a commercial premises. However, it doesn't have a fixed ground rent/maintenance charge. Instead the freeholder has an agreement in the lease whereby any maintenance is split between the separate leaseholders under the freehold (I believe that there are three flats and the commercial premises). Also, I believe the freeholder owns several, if not all, of the other leases.

Does anyone have any experience of such a maintenance agreement? On the one hand it sounds good because then the only maintenance payments I'll make will be for genuine maintenance, but the risk is that there's suddenly a massive bill for a new roof! Are these agreements quite common and is there anything in particular I should watch out for?

Thanks in advance for any advice or comments.

[Melboy]

Aaaah! Solent.... Portsmouth eh! My Hometown..... but now living in exile in Wiltshire for many a good year.

Flats above shops......difficult to get mortgages for these for a whole variety of reasons and generally treated the same as mobile homes by the mortgage companies and that is.... non mortgageable.

In your case you will need a very good conveyancing solicitor to trawl through the legal side of the Leasehold and Freeholder agreements as some can be full of legal loopholes which may come to haunt you in later years.

Generally most people will steer clear of entering into the buy to let market when it comes to buying a flat above a shop and only concentrate on the more conventional means of buying letting property.

It will be interesting to read what other Forum members think.

Mel.

[Trenners]

Hi,

The only time I would buy a flat above a shop is if I was buying the shop as well (and was investing in the flat for additional rental income).

Fraught with problems, mortgage companies don't like them .... and very difficult to sell at the end of the day ..... and the main reason for becoming a landlord is "capital growth" ... but this can only be achieved if someone else can be found to purchase the property thereby enabling you to crystalise the gain.

I wouldn't buy a flat over a shop with your money ..... let alone my money !

Mark

[Mortitia]

Usually flats above shops are quite spacious but this might have been carved up a bit already seeing as it is a one bed.

I agree with Mel and Mark. Getting a loan will be difficult (if it is above a takeaway forget it) and dealing with free and leaseholders is a minefield. Does it need a new roof - have a look?

Sounds like you might be attracted to it because it's cheap. Letting is all about return and capital gain and I think this could be fraught with problems.

Mortitia

[bdh198]

Thanks for the advice. I'm certainly going to treat any flat above a shop purchase with caution. The one I’ve looked at has a separate entrance and is categorised as an A1 (general store) in regards to a mortgage, so it’s potentially mortgageable, but I know everything will rest on the surveyors valuation report.

It’s in a good location, it’s cheap (because it’s above a shop), and if it gets a tenant then even with a slightly reduced rent it’ll produce a healthy yield. I take Trenners point, however, and realise it may be slow to sell.

The greatest uncertainty is the shared responsibility for maintenance. It’s going to need a lawyer to closely examine the lease agreement, but does anyone have any experience of this kind of maintenance agreement? I’ve been looking in the area for the last few months getting a feel for the market and this is the first time I’ve come across such a clause. If the property is in good condition then it could be a good deal, but I can’t help thinking I’d prefer the certainty of a fixed maintenance charge.