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Leasehold and Freehold

July 24, 2019

When you’re looking to buy a new home, you’ll find yourself inundated with information about each and every property you cast an eye on; from guide prices to dimensions, EPC ratings, nearby schools, and even transport links.

But one vitally important piece of information you’ll rarely find in the estate agent’s window or on a developer’s website; is whether the house sale in question is freehold or leasehold. The answer to this could make or break a property purchase, and can have huge consequences down the line if it’s something you forget to do your research on.

But if you’re new to these terms, don’t worry. We’re here to run through the basics.

What does leasehold mean, and what does freehold mean?

These two terms refer to the two contrasting forms of legal home ownership.

Freehold meaning:

If you own the property’s freehold, you’ll outright own both the building and the land it’s on, for an unlimited amount of time. You’ll be named as the ‘freeholder’ in the land registry and are likely to own the ‘title absolute’. You single-handedly own the property outright, for as long as you like, with little or no complications.

Leasehold meaning:

Leasehold is more complicated. Though you still buy and own the home in a traditional sense, you’ll only acquire a lease from the freeholder to have the property for a set amount of time. This isn’t like a long-term renting arrangement though, because that time period is usually over 100 years – a lifetime to most – and could be as many as 999 years. But be aware, there are some leasehold arrangements out there that will only last 40 years or even less.

When you’re buying a leasehold property, you will become party to a contract with the freeholder that sets out each party’s rights and responsibilities. This will include things like:

  • Who will be responsible for maintaining which parts of the building. It’s common for the freeholder to retain their responsibility for looking after entrance halls, stairways, and roofs of apartment buildings, for example. But as a leaseholder, you may want to claim your ‘right to manage’, to give yourself greater flexibility to make changes and repairs.
  • What fees the leaseholder will owe to the freeholder. These are usually charged annually and include maintenance charges, a share of the buildings insurance, and ‘ground rent’.
  • What permissions the leaseholder will have to seek from the freeholder to make changes. This would apply to major works like extensions, loft conversions or interior remodeling.
  • Any other restrictions the freeholder wants to apply. Not allowing subletting or pets at the property are common examples of this.
  • Leasehold vs freehold

    It goes without saying that buying a freehold home is commonly thought of as preferable to a leasehold, however it really does depend on your personal circumstances. As a freeholder you have total control, and there’s no danger to your property value from a lease running down over time. In many cases, such as when buying a flat in an apartment building, buying a leasehold is almost an inevitability. In situations like these, you’ll want to look for the longest leases possible, whereby the clock running down on the lease later in your ownership won’t come to affect the home’s value or desirability.

    What happens when the leasehold expires?

    When the lease on a property runs out, full ownership reverts back to the freeholder. In theory, you could lose everything you’ve invested and be forced to move out, which is why the market treats any leases with just a few decades left with such caution. Thankfully, you are entitled to request an extension to your lease long before it expires, or could even include it as a condition before you agree to purchase the lease.

    Can I renew or extend my lease?

    To protect against risky and costly short leases, Government legislation has made it much easier for leaseholders to extend their leases if they wish to, or even buy outright and become the freeholder in some cases. You don’t need to wait until your lease expires to renew either – it can be done far in advance if you want to protect the value of your home. But you should note that the process will usually cost quite a lot of money.

    For flats:

  • You’ll usually be able to extend your lease by a further 90 years, and should be able to renegotiate some of the terms when you do.
  • However, you’ll have to have had the original lease for more than two years, and that lease must have started out as a “long lease” of more than 21 years.
  • You’ll have to pay a premium as part of the process, but you shouldn’t have to pay any more ground rent.
  • Should I buy a leasehold property?

    Ultimately, only you can decide whether buying leasehold is right for you. It should certainly be a factor in your decision, but it may be something worth putting up and dealing with if it means you get to buy your dream home.

    The key thing to look out for on leasehold properties is the remaining term of the lease. If there are well over 100 years remaining, then you won’t see your property’s value affected for decades to come. But once you get to the point where are less than 90 or so years remaining, you should expect to see your house’s worth depreciate over time, relative to the movement of the wider market.

    Leasehold properties with 40 or less years remaining should certainly be approached cautiously. Buyers can expect to see the house’s value fall quite dramatically, with it essentially being worthless in the months before the lease expires. No mortgage lender would lend on a lease with that few years remaining, so you could only even consider it if you are a cash buyer.

    If you are considering buying a leasehold, on top of enquiring about the remaining term, make sure you speak to the freeholder and discuss the kind of fees and responsibilities involved. What freeholder’s charge can vary significantly and may affect the viability of your purchase.

    Whether you’d like to negotiate an extension or want someone to talk to about the legal complexities of buying a leasehold property, speaking to a property lawyer should get you all the help and advice you need. Find out more when you get in touch with My Home Move Conveyancing today.

    Disclaimer: The article above is only a rough guide on purchasing leasehold and freehold properties.

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