Buying a Leasehold Property: Frequently Asked Questions Answered
Buying a leasehold property is one way to own bricks and mortar. Most recent figures indicate that there are more than four million leasehold properties in the UK. This makes up approximately 18% of British housing stock. Whether you’re a first time buyer or moving on from another home it’s essential to ensure that you understand what’s involved in buying a leasehold property.
- What is a leasehold property?
There are two main types of property ownership in the UK: freehold and leasehold. When you buy freehold you are purchasing the property itself as well as the land that it stands on. Buying a leasehold means you don’t own the land on which the property is built and you are effectively renting this from the freeholder (landlord) on a long leasehold basis with a nominal rent (usually!).
- So you don’t legally own the property if you’re a leaseholder?
No. You’re buying the right to exclusive possession of a property for a fixed period of time.
- How long is the lease with the freeholder?
Leases have different lengths – it could be decades or centuries. The longer the lease, the more valuable it will be to you. Today, the average length for a lease is 125 years. If you are buying a leasehold property with a lease that is less than 80 years – or shorter – then this may make it difficult to sell or remortgage without extending the lease.
- Is it possible to extend a lease?
Yes. However, this can be a complex and lengthy process that may be expensive, depending on the landlord, the property value, ground rent and lease length.
- Is leasehold property common in the UK?
Yes. Most flats and apartments are leasehold. Houses tend to be freehold but that is not always the case.
- What are the advantages of buying a leasehold?
The main advantage is, if you live in a flat, you won’t be responsible for the day-to-day upkeep of the structure or any communal areas and you won’t have to negotiate with your neighbours about issues that affect the block. It will also be for the Landlord to deal with necessities, such as buildings insurance. You will pay a monthly, quarterly or annual service charge for the Landlord to do this.
- Is leasehold property more expensive?
This depends on the property itself, as well as the area that you’re in. Generally, a freehold property is viewed as more valuable, as there is no legal obligation to another party, so you will pay more for freehold. Be wary of leasehold properties that seem too cheap – there may be a hidden issue or a very short lease that you need to look out for.
- What additional costs are involved in owning a leasehold property?
There are two key costs to watch out for:
- Ground rent. This is a regular payment that you will make to the holder of the lease (the landlord). Most ground rents are low – around £50 a year – and can be fixed or escalating. Note that the government has cut ground rents for new Leasehold properties to zero.
- Service charges. These charges are paid annually, bi-annually or monthly and are designed to cover the landlord’s costs in terms of the service that they provide. This will include, for example, expenses for maintenance and repairs, insuring the building and the costs of management by an agent.
- What happens if you don’t pay ground rent or service charges?
The landlord will be able to take legal action against you. If the landlord can satisfy a Tribunal that service charges are properly due and reasonable, then they will be able to bring forfeiture proceedings. This could eventually lead to the landlord repossessing your property.
- If you’re buying a UK property are leasehold and freehold the only options?
There is a third – Commonhold. There is no landlord with a commonhold property and no lease to deal with. Instead, there is a company to which any commonhold owners are added as members. Countries such as America and Australia already use Commonhold ownership widely and it could prove less expensive and less complex for UK buyers.
- Is buying a leasehold property more complex than buying a freehold?
Potentially, yes. It’s important to have a good solicitor, as they will need to get all the right information from the seller about the freeholder and their management company, previous years accounts, ground rent, service charges etc.
- Do leaseholders have rights?
Yes, these are set out in the lease itself. Some of the most common rights include the right to quiet enjoyment and use the common parts. These rights vary dependent on the block/building in which the flat is locates.
- Why do landlords use managing agents?
If an agent is appointed, they will fulfil the role of the landlord under the lease on their behalf. The agent takes instruction from the landlord and will be paid via a fee that is incorporated into the service charge.
- What leasehold-specific information do you need when buying a leasehold property?
Your solicitor should find out how long the current lease is, the ground rent due and how much service charge you will have to pay. It will be important to establish whether there are any event-related fees and charges in the lease and any particular restrictions on the property (e.g. no pets). It’s also key to identify whether the property currently has a “sinking fund” – this is used to cover the cost of major works or repairs in the future.
- Can you buy the freehold of a leasehold property?
Collective enfranchisement gives leaseholders the right to join together to buy the freehold for a fair market price. Generally, the cost equates to the expense of extending the lease for 90 years.
Buying a leasehold property can be a great way to get onto (or move up) the housing ladder – as long as you’re aware of the realities and risks involved.
For further information on the issues raised, please contact Sarita Ghere at email@example.com