I’m looking for a property, and I see that flats are leasehold. What does this mean for me?
As you’ve noticed, flats are commonly owned on a leasehold basis, while houses are normally sold as freehold properties. In the UK, more than 2m people own leasehold properties. Many leases are granted on a 99-year basis, while some can run for as long as 999 years.
If you buy a leasehold property, you’ll be known as the leaseholder and will own the property but not the land it stands on. By contrast, buying a freehold property means that you own both the building and the land it occupies.
Why does the length of lease matter?
With leasehold properties, the land is owned by the landlord who is referred to as the freeholder. The lease document will show the term of years the lease is granted for. Once this term expires, ownership of the property will revert to the freeholder. This means that a property approaching the end of its lease will decrease in value.
Most leasehold properties will be offered for sale with leases that still have several decades to run. However, once a lease has less than 80 years left, it becomes harder to get a mortgage for the property and it can be very expensive to get the lease renewed for a further term of years.
The general advice is that to avoid having to shell out tens of thousands of pounds, buyers should look for a
property with a lease that’s unlikely to drop below the 80-year mark during their ownership.
Responsibilities under a lease
Leases often contain obligations; leaseholders must get permission before making certain alterations to the property and are required to pay an annual charge known as ground rent.
With a leasehold flat, you aren’t responsible for maintaining and running the building. The freeholder will do this or alternatively appoint a managing agent to act on their behalf. However, the leaseholders share the cost of this between them by paying a service charge.
Buying the freehold
Thanks to changes in the law over the last decade, leasehold property owners have the right to band together with the neighbours and buy the freehold.
Whilst it’s right to be cautious when considering a leasehold purchase, if there is sufficient time left on the lease, the document itself is well written and the building is properly managed then it can be a sound investment.