The costs of owning a flat

18 May 2015

As with a freehold house, you can expect to pay the usual utility bills (e.g gas, electricity, water and telephone), and of course Council Tax.

But what about insurance (buildings and contents), and any payments due to the landlord under the lease?

Contents insurance will inevitably by an expense falling to you as the tenant, but who pays the insurance for the building will be determined by the lease which governs your ownership of the flat. The usual position will be that the landlord takes it out, but that you pay a share determined by how many flats their are. The lease will often state what percentage of the premium you have to pay.

So far, no real difference to owning a freehold house.

But, the two main differences will be payments for ground rent and service/maintenance charge, liability for which will be set out in your lease.

Ground rent acts as an incentive for the landlord to maintain an interest in overseeing the management of the building. Their income, or profit as it were, in being the landlord. The more flats paying ground rent the better for them. There is never a set amount as it varies wildly in each lease, from nil (a peppercorn) to hundreds of pounds. A common amount is £100-£200, but only an example.

Then, what is almost always the biggest charge/difference to freehold ownership is the amount your lease obliges you to pay as a contribution towards the cost of maintaining/repairing the building and, where applicable, the estate around the building which the flat derives some benefit from. And it is not always limited to repairs, it can often include the ability for a management company to take charge and levy their own fees for doing so.

Again, this overall maintenance charge will fluctuate depending on each flat/lease, whether a few hundred pounds a year to several thousand or more. 'Forced maintenance', compared to a freehold owner who can choose when, and if, they maintain their house, and (though tenants have a limited ability to also choose) which contractors they use.

Add the ground rent and this maintenance charge, both to utilities and then mortgage repayments, it can total quite a lot going out each month.

It is essential that anyone proposing to purchase a lease realises these extra amounts, especially as ground rent can increase (depending on whether the lease allows for it) and maintenance charge invariably rises, particularly dependent on the need for repairs from time to time.

(There are often ongoing 'optional' costs such as the landlord's charge for providing consent to anything in your lease obliging the landlord's prior consent. Even the need for simultaneous consent from any management company also a party to the lease, doubling the cost, for what might be a simple task which consent is sought for – letting the property out, or keeping pets etc.)