A Guide to Leasehold Property

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Posted in Buy To Let News.

    There are two main kinds of property ownership: leasehold and freehold. Flats and apartments are almost always leasehold which means you will own the property for a set amount of time (the lease); but not the land it’s built on. This article will give you more information about leaseholds and what you should look out for when purchasing one.

    What is a leasehold?

    A leasehold is a legal agreement whereby you own the property but not the land it resides upon. The ownership of both is called a freehold. Leasehold and freehold are the two main types of land tenure you’ll encounter when purchasing a property.

    Although leaseholds are most common for flats and apartments, some houses (mostly new builds) are also leasehold.

    How long is a leasehold?

    Leaseholds tend to be between 90 and 999 years, though the exact length varies between properties. If a property has a short lease – for example 40 years – it can be difficult to remortgage or sell and can severely impact the property value.

    The general rule is that you should avoid residential leaseholds of less than 80 years. Commercial properties are the exception as these leases are rarely longer than 25 years.

    What happens when a lease ends?

    When the lease ends, the ownership of the property will return to the freeholder – even if you’ve paid your mortgage off in full. This means that even if you’ve had the property for the entire lease, you will have no further ownership of it.

    Can I extend a lease?

    Extending a lease is a complex and costly legal process, so it’s very important to think about it carefully before you commit.

    Designed to protect leaseholders and to help you extend a lease are these laws. If the property is a flat, the lease was more than 21 years when you purchased the property, and you’ve held the lease for at least 2 years; by 90 years you can request to extend it. You will probably have to ask other leaseholders in the property to do the same though.

    If the property is a house and you meet these same criteria, you can request an extension of 50 years.

    However, the freeholder does not have to accept your offer. If they do reject it, you can challenge them in court.

    If you haven’t yet bought the property, you can ask the freeholder to extend the lease. They may increase the purchase price before they do this.

    It’s always worth seeking professional legal advice before you do anything.

    Can I buy the freehold?

    If the freeholder is planning to sell the freehold you will be offered ‘first refusal’. If you own a flat and buy the freehold you will only own a share of it. However, if you own a house you will own the entire freehold.

    Are there any additional fees?

    You will have to pay the freeholder ‘ground rent’ while living in your leasehold. This is usually around £50 per year and will be stipulated in the lease.

    There may be other annual charges too. These could be contributions towards communal repairs or the upkeep of grounds and gardens. They often rise each year so be prepared to budget for this.

    If you are planning on making any changes to your property such as extension you will need to apply for permission from the freeholder.

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