10 min read
Buying a leasehold property can be complex, with different rules, costs, and restrictions compared to freehold homes. In this guide, My Home Move Conveyancing explains how leasehold purchases work and what you should check before you buy.
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Leasehold properties come with ongoing costs, legal obligations, and restrictions that don’t apply to freehold homes.
Lease length, ground rent terms, and service charges can affect mortgage approval, resale value, and future costs.
A conveyancer plays a critical role in identifying risks early, including short leases, escalating ground rent, and unfair or unusually expensive lease terms.
A leasehold property differs from a freehold in that you don’t own the property or the land outright. Instead, you buy the right to live in the property for a fixed period of time, known as the lease, which typically ranges from 99 to 999 years.
Buying a leasehold property usually also involves ongoing costs, such as ground rent and service charges. These fees, along with the length and terms of the lease, can affect affordability, mortgage approval, and resale value. Understanding these differences is essential before committing to a leasehold purchase.
In this article:
November 7th 2024-5 min read
Our handy guide explains the difference between freehold and leasehold properties.
Learn more about property tenuresYes, you can buy a leasehold property, in fact most flats are leasehold as they’re part of a larger building. Some leasehold houses, particularly new builds, are sold directly by developers. However, this isn’t as common.
The process of how to buy leasehold property can be complex, as each lease has its own variations. It’s important that you understand exactly what your responsibilities are as a leaseholder, including financial, parking, maintenance, and rights of way.
Buying a leasehold can sometimes take a bit longer and be more costly than buying freehold, due to the extra complexities. Management companies are often privately run and tend not to be regulated, meaning they can respond in their own time to any questions- that you or your conveyancer may have, and set their own costs.
Understand your lease: Read it carefully and consult a solicitor for any unclear terms.
Be aware of fees: Developers may sell freeholds to third parties, causing escalated fees.
Check for restrictions: Some clauses may limit how you can use the property.
Know the financial impact: Onerous clauses can affect mortgage availability and resale value.
Extra costs and delays: Leasehold purchases can be more time-consuming and expensive.
Leasehold properties usually come with ongoing fees that can change over time and affect affordability. One of the main differences between leasehold and freehold ownership is the requirement to pay ground rent and service charges.
Service charges usually cover the cost of maintaining and repairing the building as a whole, including communal areas such as hallways, stairwells, gardens, and shared facilities. These charges can vary from year to year depending on the work required and any major repairs planned.
Your conveyancer will check that any service charges owed by the seller are fully paid and cleared before completion. In most cases, service charge liabilities sit with the current property owner, rather than the owner at the time the charges were accrued.
Ground rent is a separate annual payment made to the freeholder for the right to occupy the property. It may be charged at a fixed rate or set to increase over time under an escalation clause.
Fixed ground rent remains the same for the duration of the lease, while escalating ground rent can rise at set intervals - sometimes doubling every five or ten years. This has been a major source of dissatisfaction among leaseholders, particularly where buyers were unaware of future increases when purchasing the property.
Your conveyancer will review the ground rent terms in detail and highlight any clauses that could affect affordability, mortgage approval, or resale value.
It may be worth buying a leasehold property if:
You’re purchasing a flat: For most flats, freehold ownership isn’t possible, meaning leasehold is often the only option available.
The lease is long and the costs are reasonable: A longer lease (ideally over 80 years) with fair ground rent and manageable service charges can reduce financial risk and make the property easier to mortgage and resell.
You understand and accept the ongoing obligations: This includes paying ground rent and service charges, complying with lease restrictions, and potentially seeking permission from the freeholder for certain changes.
When it comes to the specifics of ground rent and lease terms, it's crucial to gather comprehensive information to avoid unforeseen expenses. Here's the key items we feel you should discuss with your conveyancer:
Try to understand the base amount you will need to pay annually. Ask if the ground rent is fixed or variable? That way you can determine if the rent will remain the same or if it could increase over time.
This clause could allow the ground rent to be reviewed and potentially increased at set intervals. Knowing how often the rent is reviewed, and what factors influence the increase can help you to pin down the frequency of reviews and understand the parameters that could lead to rent hikes.
This is especially relevant if you're purchasing a new build, enquire if there's flexibility in the amount of ground rent to be paid. Clarify whether this negotiation should occur through your conveyancer, management agent or directly with the developer.
Consider how the ground rent may affect future property value and resale? Be aware of how these costs could impact your investment over time. Ask for examples of recent amendments to the ground rent to get a sense of potential changes in future.
The length of a lease varies and can be up to 999 years. Before you buy a leasehold property, it’s essential to find out how long is left on the lease. If it has fewer than 80 years remaining it may be necessary for either you or the seller to extend it before progressing.
Once a lease drops below 80 years, the cost to extend it rises considerably. A short lease can affect your ability to get a mortgage and may require you to take additional steps to secure financing. This is a crucial point for potential buyers to consider. Ideally, you want a property with at least 83 years left on the lease. This will give you enough time to live in the property for a couple of years if you then wish to extend the lease.
Yes, there are two options available to extend a lease: a statutory lease extension and an informal lease extension.
You have the right to a statutory lease extension if you’ve owned the property for at least two years and it’s a long lease; the original term must be more than 21 years. In this circumstance, the freeholder must extend the lease by 90 years with no ground rent added, however you may need to pay a premium.
The other available option is an informal lease extension, where you would agree terms to extend the lease directly with the freeholder. Although this option tends to be quicker, the fees and terms are usually at the discretion of the freeholder, for example a limited time extension or an increase in ground rent.
Find out more about lease extensions and the process to extend your lease.
If you are planning to sell a leasehold property with a short lease, it’s important to understand how this might affect the sale. Properties with short leases often require a seller to lower their asking price to account for the significant costs the buyer may face when extending the lease. This adjustment reflects the reduced market appeal and the additional financial costs associated with lease extensions.
Learn more about the potential challenges and implications of selling a property with a short lease by exploring our guide.
It is possible to buy either a share of the freehold at the time of purchase or buy the freehold as a group of leaseholders in the same building. There’s also an option called Right to Manage. Find out more about the options below, or read our handy guide which explains all about buying the freehold of a flat or house.
A share of the freehold is sometimes included in the purchase of a flat. There are usually two ways in which you can purchase a share of the freehold, and your conveyancer will advise which is best for your circumstances.
The Leasehold Reform Housing and Urban Development Act 1993 allows a group of leaseholders to apply to the freeholder of their building to purchase the freehold together. The benefit of doing this is that you can control your own lease, extend it on your terms and manage the building.
The biggest potential disadvantage is around the number of parties involved, and therefore the greater chance of disagreements or tensions arising with your fellow leaseholders during negotiations.
There’s another option called Right to Manage. You can apply for this for free alongside the other leaseholders, allowing you to gain more control over your building. You still have to pay ground rent to the freeholder, but you can control service charges, maintenance costs, buildings insurance etc.
When you're leasing a property, it's vital to understand the typical restrictions that may apply. These limitations can vary, but here are some of the most prevalent constraints you might encounter:
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Many leases prohibit tenants from having pets. This is often more common in apartment complexes where noise and potential damage could affect other residents.
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In some flats, you might not be able to hang laundry on balconies or in outside spaces. This rule ensures the building maintains a tidy and uniform appearance.
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Many leases will have guidelines on acceptable noise levels, especially in buildings with close quarters, so that all residents enjoy a peaceful living environment.
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Most leases require you to get the freeholder’s permission before undertaking any major building projects. It's not uncommon for freeholders to may charge a fee for granting consent.
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Some leases explicitly restrict your ability to sublet the property or have additional occupants move in.
It's easy to forget the boring questions when you're viewing your potential new home. So here's a quick fire list of ten questions we think you should ask when viewing a leasehold property:
How many years are left on the lease?
What is the ground rent, and how often is it reviewed?
What are the service charges, and what do they cover?
Are there any major works planned?
Who is responsible for managing the building?
Are there any restrictions or covenants in the lease?
What are the lease extension options and costs?
Is the freeholder responsive and easy to deal with?
Are there any current or ongoing disputes between leaseholders and the freeholder?
Is there an opportunity to buy the freehold in the future?
These questions will help guide your decision making process and allow you to better understand your responsibilities, costs, and the long-term viability of the leasehold property.
The Building Safety Act came into law in April 2022 and will impact the purchase and sale of flats in buildings of five or more storeys, increasing timeframes for buying and selling.
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