Do you know the difference between leasehold & freehold properties?

What is a leasehold?

When you own a leasehold of a property, you own the property but NOT the land on which the property is built. The land is owned by the freeholder. This means there must be an agreement (called a ‘lease’) between the leaseholder and freeholder in which there is an understanding of who looks after what and what costs may be associated with the maintenance of the building and communal areas around the property.

This is often referred to as a ‘service charge’ or ‘ground rent’ and can vary depending on what a leaseholder has access to. When a freehold is divided into leasehold properties, there is a commencement date on which the lease begins and an agreed amount of time until the lease expires. Once the lease expires, technically the ownership of the property passes to the freeholder but there should always be the possibility to extend a lease.

What are the advantages of a leasehold?

Many leasehold properties benefit from a number of things for example access to communal facilities such as large open spaces, parking, on site gymnasiums, concierge services and even swimming pools!

Owning a leasehold often means that they have well maintained communal areas such as hallways, entrance lobbies, lifts, car parks, bin stores, secure cycle stores etc. The maintenance of these areas often falls on a freeholder or management company to ensure that they are kept clean and in good condition.

The responsibility of insuring the building is insured, also known as ‘building insurance’, is up to date with fire & risk assessments, is the responsibility of the freeholder.

Leasehold

What are the disadvantages of buying a leasehold property?

The service charge costs involved with the management and upkeep of the block and the communal area can vary depending on what the leaseholder benefits from.

This is dictated by the freeholder although must be justified and itemized through the conveyancing when purchasing a leasehold to ensure the management company is being fair and reasonable. You often also owe the freeholder an annual ‘ground rent’.

There has been a lot of media attention surrounding unreasonable ground rent charges which has bought about a positive reaction from mortgage lenders and is in the process of being regulated to ensure leaseholders are paying reasonable and fair ground rents.

Although there is a lot less to worry about when you own a leasehold property, it often means your solicitor has a lot more to work through when purchasing a leasehold property; this often means the process can take longer so it is important to instruct a good solicitor when you buy a leasehold.

What should you be aware of when considering a leasehold over a freehold?

People often consider all apartments to be leasehold, and houses to be freehold however this is not always the case. Any property can have a lease put in place and converted into a leasehold. During this process, a set amount of years are agreed, typically around 125 years (although anything up to 999 years can be allocated) and the details of lease will be set out.

Once a lease drops below about 80 years, it can become difficult to get a mortgage on the property and it is worth considering extending the lease. This can often be costly and you must have owned the property for 2 or more years before you can apply to a freeholder to extend this. This is worth considering when purchasing a property as it could be an issue when you come to sell.

There can sometimes be restrictions in leases set out by the freeholder for example, you may need to get permission to have a pet within the property or if you want to carry out any alterations to the property.

Most of the time the freeholders employ a management company to deal with the management of the block, this often means if there is any issues with the building or communal areas that fall out of your responsibility as a leaseholder there is a management team on hand to help with any queries or maintenance.

In some scenarios you can own a ‘share of the freehold’, this means that you own a leasehold flat in a building that you co own the freehold with the other leaseholders in the building.

This means you will still own the underlying lease, but the management and maintenance of the building and communal areas is shared amongst the leaseholders also. This can be beneficial as you can avoid high service charges and expensive lease renewals however it does mean that if there are issues or maintenance required with the property, this is the responsibility and cost of the leaseholders.

For more information on leasehold properties click here.

If you have any questions about the above or would like to speak to one of our property experts, please contact us on 01923 776400.

Click here to view our available properties or alternatively, if you are thinking about selling your property, click here to find out how much your home is worth in the current market.

BlogArchive