Buying a leasehold property

A leasehold property is different from a freehold, in that you don’t technically own the property and the land it’s on – or in the case of a flat, the building it’s in,. The lease gives you the right to occupy a property for a stated amount of time, usually between 99 and 999 years.

Find out more about the differences between leasehold and freehold.

In most cases, the biggest difference when purchasing a leasehold property, vs a freehold, is that as the owner will have to pay ground rent and/or a service charge to a management company or the freeholder.

In this article:

Need more information about the process of buying a house? Read our guide.

Can you buy a leasehold?

Yes, 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 the developer. 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.

Key considerations:

Is it worth buying a leasehold?

With the additional costs and complications involved, you might be asking why would anyone buy a leasehold property? One reason is if you want to buy a flat – chances are this will be leasehold. When weighing up whether it’s worth buying a leasehold, you need to take a few things into consideration, including ongoing costs and length of lease.

What costs are associated with a leasehold property?

One of the disadvantages of buying a leasehold property is having to pay ground rent and service charges. The service charge usually covers repairs and maintenance to the building as a whole, including communal areas like hallways or garden areas.

However, ground rent is a separate annual payment made to the freeholder. It can be either at a fixed rate or an escalating rate. Fixed rates stay the same for the duration of a lease, while escalating rates can see fees double after a fixed period — sometimes as often as every five years. Research into leasehold houses found that ground rent was one of the main dissatisfactions among leaseholders. Many leaseholders are unaware that their ground rent could increase when they purchase a leasehold property.

Your conveyancer will thoroughly check this information to make sure all service charges payable by the seller are completely cleared and discharged and won’t pass to you. The charges tend to lie with the property owner at the present time rather than the owner at the time the charges were accrued.

How long is a lease?

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.

Why 80 Years Matters

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.

Can you extend a lease?

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.

Selling a property with a short 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.

Is it possible to buy the freehold of a leasehold home?

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.

Purchasing a share of the freehold

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.  

Purchasing the freehold as a group of leaseholders

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. 

Right to Manage

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.

Ten questions to ask at a leasehold property viewing

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:

1. How many years are left on the lease?

2. What is the ground rent, and how often is it reviewed?

3. What are the service charges, and what do they cover?

4. Are there any major works planned?

5. Who is responsible for managing the building?

6. Are there any restrictions or covenants in the lease?

7. What are the lease extension options and costs?

8. Is the freeholder responsive and easy to deal with?

9. Are there any current or ongoing disputes between leaseholders and the freeholder?

10. 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.