What will owning a ‘leasehold’ property as opposed to a ‘freehold’ one mean for me?
  • 25th Nov 2019
  • Article written by Emma Corkan
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The freehold owner of a property owns it outright, including the land it’s built on. If you buy a freehold, you are responsible for maintaining your property and land, so you’ll need to budget for these costs. Most houses are freehold but some might be leasehold.

 

The benefits of owing a freehold property mean that you don’t have to:

  • Worry about the lease running out, as you own the property outright.
  • Deal with the freeholder (often known as the landlord).
  • Pay ground rent, services charges or any other landlord charges.

 

So in relation to owning a leasehold property, let us begin by explaining what a lease actually is. The lease is the contract between you and the Landlord (the Freehold owner of the actual building, if you do not own a share in the Freehold). It contains the terms of the contractual arrangement, such as what Landlord’s costs can be recharged to leaseholders via a service charge and details any restrictions on your/the leaseholder’s ability to sublet the property or make alterations to it. If your property is leasehold, you hold the property on behalf of the freeholder and pay rent for the home until your lease expires. Leases of residential properties are usually long term, often 90 plus years, however some developers have sold homes with leases as high as 999 years. Once a Lease has less than 90 years remaining you would want to consider extending the term of the Lease.

 

Before you buy a leasehold property, it is really important to be aware of what your lease actually says and to fully understand any charges you may face. The Lease will usually require that you pay a sum of ‘ground rent’ for the property. This is often a fixed sum, the ground rent is an annual charge which the leaseholder must pay to the owner of the freehold under the terms of your lease. Your lease may contain a clause which allows the landlord to increase the cost payable for the ground rent every five to eight years from the date of build/grant of your Lease. It is vital that you get all the detail about the ground rent to avoid any unexpected costs in the future. Whitehead Monckton will advise if there are any rent review clauses in your lease and will check what this would mean for you. The costs of the ground rent may be negotiable if you are buying a new build property and this is something we would check and negotiate for you on any new build purchase.

 

Under the terms of any lease there will most likely be service charges to be paid. Service charge is a fee is payable by all residents, this fee contributes towards the upkeep of the building. This could include cleaning of communal areas, upkeep of outdoor spaces and general maintenance. Generally, the fee payable is fixed however this may change year on year. During the process Whitehead Monckton will inform you of any charges and enquire as to whether the landlord has any plans for works, which you will be responsible to pay for.

 

So to recap, when buying leasehold property you need to consider:

  • The number of years remaining on the lease
  • Ground rent costs and when it is payable, together with details of if or how this will increase over time
  • The annual service charge costs and when it is payable
  • Details of any event-related fees & charges payable under the lease
  • Rent payable in the case of a shared ownership arrangement
  • Details of any other fees or charges contained in the lease
  • The total balance of the reserve/sinking fund, if there is one
  • Details of any unusual restrictions or covenants affecting your use and enjoyment of the property

 

Make sure you have a clear understanding of what you are entering in to, how much you will be expected to pay on an annual basis and if there are due to be any increases. So before making an offer on a leasehold property you’ll need to consider:

  • How many years are left on the lease.
  • How you’ll budget for service charges and related costs.
  • How the length of the lease might affect getting a mortgage and the property resale value.

Service charges vary from property to property and are to pay for things such as:

  • Maintaining communal gardens,
  • Electricity bills for communal areas, or
  • Repair and maintenance of exterior walls
  • If you own a leasehold property, the repairs and maintenance on your property are your responsibility.

 

You might also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future. Make sure you’re aware of the service charges before you put in an offer on a property as it might affect whether you can afford to live there.

 

Finally, you can ask the landlord to extend the lease term at any time in the future but this will be subject to the Freeholder’s agreement. However once you’ve owned your home for two years, you have the legal right to extend your lease by 90 years, provided you are a qualifying tenant. The freeholder will charge a market value for extending the lease and the cost will depend on the property and the years remaining on the lease. If you and the freeholder can’t agree on the cost of extending the lease, you can appeal to the Leasehold Valuation Tribunal.

 

Please call us if you have any further questions or for a no obligation quotation.