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:
- Can you buy a leasehold?
- Is it worth buying a leasehold?
- What costs are associated with a leasehold property?
- How long is a lease?
- Can you extend a lease?
- Is it possible to buy the freehold of a leasehold home?
- The Building Safety Act
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.
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.
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.
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.
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 purchase the freehold as a group of leaseholders in the same building. There’s also an option called Right to Manage.
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.
The Building Safety Act
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.
Find out more about the Building Safety Act here.