No one ever has woken up one day and declared ‘It is my dream to buy a Leasehold property and I will not stop until I have one’! Most people setting out to buy a home are not focusing on its legal status. Location, price, layout, and future plans are the factors featuring most prominently in the decision making process. It may be that it is only after settling on the right property that the issue of the type of legal ownership involved is considered at all.  

Property can be ‘owned’ in one of two main ways, either by buying the Freehold or the Leasehold. Care needs to be taken to understand the differences between the two forms of ownership and the consequences of choosing one over the other. Before getting an online conveyancing quote it is crucial to understand the nature of what is being purchased to make sure the quote is accurate.

What is a Freehold

Buying the freehold of a property means that you own the building and the land it stands on outright, for as long as you live, or choose to own it. Once bought the property becomes Registered in your name at the Land Registry and you own it outright subject to any mortgages used to fund the purchase. The Freeholder does not have to pay a ground rent to anyone else, has the responsibility for the full maintenance of the property inside and out as well as for the grounds within the boundaries of the property.

What is a Leasehold

Buying the Leasehold means that you acquire an agreement to have the use of a building and parts of the land around it from the person who owns the Freehold for a fixed number of years. At the end of the Lease the property is handed back to the Freeholder. The length of the lease can vary enormously from several hundred years to only a few decades and this affects the Leaseholders ability to mortgage or sell on the property. Naturally, the longer the Lease the more valuable a property is. Who would buy a Leasehold property that in a few years will be worthless as it has to be handed back?

The Leaseholder has the benefit and obligations of a Lease agreed with the  Freeholder and when a Leasehold is sold it is on the terms and conditions set out in the Lease.  This document sets out both the legal position, the rules on which the Leaseholder has the benefit of the property and the rights and obligations expected on each side.

The Freeholder will usually have responsibility for maintaining the common (meaning used by everyone) parts of the building, such as the entrance hall and staircase, as well as the exterior walls and roof. However, other leaseholders might have claimed their “right to manage”, in which case it is their responsibility. See below.

Leaseholders will usually have to pay maintenance charges, annual service fees and a share of the building insurance for the whole property. Leaseholders will normally also pay ground rent to the freeholder usually once a year. Leaseholders have to obtain permission for any majors works done to the property which can be problematic and lead to disagreements. Leaseholders may face other restrictions, such as not owning pets or subletting.

In a Freehold situation if there is a mortgage then if the mortgage is not paid the Lender may seek possession of the property. However, in the main the Freeholder has unfettered rights to live in the property.  But, if  a Leaseholder does not keep to the  terms of the Lease, then they may be forced to surrender the property.

Ideally the Lease should set out the terms and conditions clearly but there are still sometimes arguments and differences of interpretation which can lead to difficulties. Disputes car arise over the fees charged by the Freeholder, maintenance not being carried out quickly enough to a good enough standard or other Leaseholders breaching the lease and action not being taken.

Although it is not just flats that are Leasehold, this is often the most common way a buyer will encounter a Leasehold property. So now that you know the difference what factors need to be considered when deciding whether to go ahead with Leasehold purchase?

Length of the Lease

Usually, you should try to ensure that a Lease has over 100 years to run. Below that level you may have trouble reselling as buyers might find a mortgage company reluctant to lend money on it as provides less reliable security. It is wise to think about this in advance as life circumstances can change rapidly. When organising the Conveyancing or getting an online conveyancing quote it is vital to consider how these issues can affect the purchase. 

There are some protections in place for Leaseholders against short leases.  In particular the right to extend the Lease or the right to buy the Freehold. The rules apply differently to flats and houses.

Extending the Lease – Flats

For flats Leaseholders who have owned the Leasehold for more than two years can normally be extended by 90 years on top of whatever number of years is left on the Lease. The terms of the Lease can be renegotiated. You normally have the right to extend your lease by 90 years on top of however many years are left. Naturally, there are costs involved and your online conveyancing quote needs to take account of this.

Extending the Lease – Houses

For houses a Lease can be extended by a term of 50 years. Just like flats the terms of the Lease can be renegotiated. Again there is a requirement of a two years qualifying ownership period.

The cost of the extension varies according to the value of the property, how long is left on the lease, the annual ground rent, the value of improvements done to the property paid by the Leaseholder and external factors such as expected rate of returns on investments. 

Buying the Freehold

Leaseholder may also have the right to buy their house or flat outright, so that they own the Freehold. This is known as ‘enfranchisement’. What it means is that the Leaseholders become the Freehold owners of the building. This can happen where at least half of the Leaseholders come together to agree to buy the Freehold. Naturally, there is a negotiation on the price.

Once it is purchased it is normal for a limited company to be formed which is owned by the Freeholders to take care of the ground rents, organise the building insurance and crucially deal with Lease extensions. It enables Leaseholders who are living in the same building to take more control over what happens to them. The benefits are clear in that it can avoid Leaseholders being charged over the odds for these matters. This is a complex area and legal advice is essential.

Right to Manage

This is a step short of buying the Freehold as sometimes this is not possible. It allows a group of Leaseholders to take over the management of the building themselves or appoint an Agent. The Freeholder still owns the Building but the Leaseholders get a greater say in the issues that affect their occupation.

There are many factors to consider when looking at whether a Leasehold property is right for you. Although at first the issues involved may appear complicated, there is no reason to avoid Leasehold properties so long as you are properly prepared and have done your homework. This is an area where the online conveyancing quote really needs to be looked at carefully to ensure it is realistic and takes into account the nature of the transaction.

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