Buying a flat at auction: The leasehold checks that matter

Four checks can make the difference between an auction flat that represents good value and one with substantial extra costs: the lease length, service charge position, ground rent, and any planned major works. Look for all four in the auction legal pack, and ask your conveyancer to investigate anything missing or unclear. At a traditional unconditional auction, the successful bid normally creates a binding contract, so these costs and liabilities should be understood and factored into your maximum bid before auction day. Our guide to auction property conveyancing explains why the legal checks need to be carried out before you bid.

Lease length: the 80-year line

In England and Wales, extending a lease with 80 years or less remaining can cost significantly more because marriage value can become payable under the current statutory system. This reflects part of the increase in the property's value created by extending the lease and is payable in addition to the other elements used to calculate the premium. A short lease can affect both the property's value and the range of mortgage lenders willing to lend against it, so treat the remaining lease term as a potential cost rather than a minor detail.

The number is in the legal pack: the official copy of the register or the lease itself shows the term and its start date, and the years remaining are the term minus the years already run. A flat with 82 years remaining is a different proposition from one with 78 years remaining because the shorter lease may affect its value and the range of mortgage lenders willing to lend against it. Lender criteria vary, so check the position before bidding. Our guide to freehold vs leasehold property explains more about how leasehold ownership works.

Check who is responsible for service charge arrears

Do not assume outstanding service charges will automatically remain the seller's responsibility. Auction special conditions can require the buyer to pay specified arrears on completion, so your conveyancer should check exactly what the contract says. Ask your conveyancer to check for any outstanding service charges, the latest service charge accounts and any information supplied by the managing agent. If the special conditions require you to pay an existing liability, include that amount when calculating your maximum bid.

Ground rent depends on the lease date

Under the rules explained on the government's leasehold service charges and expenses page, a lease granted on or after 30 June 2022 can usually charge only a peppercorn ground rent, which is worth nothing. Older leases still carry whatever the lease says; the freeholder can demand up to six years of unpaid ground rent at once, and steep or escalating ground rents can put lenders off.

For leases granted before 30 June 2022, ground rent may still be payable under the lease terms. Under the government’s leasehold service charges and other expenses guidance, a landlord can generally recover unpaid ground rent going back up to six years, provided it has been properly demanded. Some ground rent terms can also affect mortgageability. Buying an existing lease after June 2022 does not necessarily mean its ground rent has been reduced to a peppercorn, so check the lease itself.

Major works and section 20 notices

Landlords generally have to consult leaseholders before carrying out qualifying works where any one leaseholder's contribution will exceed £250. This is commonly known as a Section 20 consultation. A Section 20 notice in the legal pack is an important warning that major works may be planned or underway. Costs for works such as roof repairs, lift replacements or other communal works can be substantial, so ask your conveyancer to establish the estimated contribution for the flat, how far the consultation has progressed and whether the sale contract says who will be responsible for the cost.

Pricing it all in

A worked example. A flat has a guide price of £120,000 with 72 years left on the lease. The pack shows £2,400 of service charge arrears that the special conditions require the buyer to pay, together with a Section 20 consultation for works currently estimated at £8,000 per flat.

You should therefore factor the £2,400 arrears and the potential £8,000 major works contribution into your calculations, as well as the likely cost of extending the lease. Ask your conveyancer to establish whether the major works figure is only an estimate, whether a formal demand has been issued and who will be responsible for paying it under the sale contract.

None of this makes auction flats bad buys. It makes them buys for people who read first, and sellers rely on bidders who do not. Get the pack in front of a conveyancer the week the catalogue is published. You can compare quotes from regulated conveyancing firms in a couple of minutes and have the checks costed before you register to bid.