A leasehold property is not owned outright. If you buy a leasehold property, you own it for a set amount of time according to the length of the lease. Although they don’t own the property, a leaseholder has the right to live in the property for a fixed number of years. A leasehold is purchased from the freeholder who owns the property and the ground it sits on. Once the lease term ends, ownership of the property returns in full to the freeholder.
How Common is it To Buy a Leasehold Property?
A leasehold is commonplace when buying a flat or apartment because it is part of a larger building. However, the number of leasehold houses has also increased in recent years, especially with new builds sold directly through the developer.
How Long Can a Property Lease Be?
Newly-created leases can last anywhere from 99 to 999 years. A 999-year lease is potentially as good as a freehold, and there are even some advantages to owning long-lease properties (see below). However, if a lease is short, under 80 years, it can make it difficult to sell your home, and it may be harder to remortgage. If you’re considering buying a leasehold property, the first thing you should do is check how much of the lease is left.
What Happens When a Lease Ends?
Once the lease term ends, ownership of the property returns in full to the freeholder. As a result, however much money you paid for the property is lost when the lease runs out. Although this doesn’t often happen in practice, it’s a risk that can be stressful for leaseholders with shorter terms.
Can I Extend My Lease?
If the lease has less than 80 years left on it, you have the right to extend it so long as you have owned the property for at least two years. It’s best to renew as soon as possible because it will get more expensive. Typically a lease is extended by 90 years. For example, if you have 75 years left when extending the lease, the new term would be 165 years.
What Do I Need to Know Before Buying a Leasehold Property?
Before you decide to buy a leasehold property in the UK, there are a number of questions and key considerations to think about, all of which may help you determine whether or not a leasehold property is right for you, your preferences and your circumstances. Unlike a freehold property, when it comes to a leasehold, although you may own the property, there will be others involved with the property, for example, the freeholder and potentially a block management company which makes the process a little more detailed and thus, gives rise to a number of questions:
What Do You Own?
With a leasehold, you do not own the land which the property sits on. You also don’t own the structure of the building itself. If it is a flat, you don’t own communal areas such as stairs, hallways or gardens.
What Is Ground Rent?
You will pay ground rent to the freeholder as a yearly fee. Ensure that you are clear about how much the ground rent is and how much it may rise in future when looking into a leasehold. It can be either at a fixed or escalating rate. Escalating rates can be risky as fees can double after a period—sometimes as frequently as every five years.
How Do Maintenance and Service Charges Work?
As a leaseholder, you will pay maintenance and service charges to the freeholder. This fee goes towards the upkeep and maintenance of communal areas such as gardens, hallways, elevators and covers building insurance. The amount is usually fixed but can change year on year.
What Restrictions Are There When Leasing a Property?
In most cases, a lease will include certain restrictions on what you can do with the property. For example, the freeholder may ban pets, and you may need to ask permission before making any changes to the property. The terms of your lease are important as breaking them could see you in court, and you risk losing your lease.
Who Pays the Buildings Insurance for a Leased Property?
The freeholder is usually responsible for buildings insurance. However, the leaseholder is responsible for contents insurance.
What Are The Disadvantages of Leasehold Properties?
The disadvantages can be quite off-putting when it comes to purchasing a leasehold property, and there are a few potential benefits. However, buying a leasehold property, much like buying a freehold property is a big decision and one for which you should think about and consider both the advantages, as well as the disadvantages which may include:
- You will pay service charges and ground rent to the freeholder, which can increase throughout the lease
- You may not be allowed pets in your home
- You will need written permission from the freeholder to make changes to the property, and there may be added fees
- You might not be allowed to run your business from home
- You may not be able to sub-let
- A shorter lease will make your house harder to sell and can reduce your property’s value
- You risk being exploited by the freeholder who has the power to increase ground fees sky high
What Are The Advantages of Leasehold Properties?
Potential benefits to a leasehold include:
- Leasehold properties tend to be cheaper because of the risks involved
- The freeholder usually is responsible for all building maintenance in communal areas
- The freeholder is responsible for maintaining the structure and upkeep of the building
- The freeholder arranges building insurance
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