What does leasehold mean when buying a property?

When you buy a property in England it usually falls into one of two categories - freehold or leasehold.

In a nutshell, freehold is when you own the property and the land it stands on, for an unlimited period. Interestingly as a result of the Civil Aviation Act 1982  it also means you'll also 'own' and have rights to the 'airspace' above your property up to about 500 feet.

Unlike a freeholder, as a leaseholder you do not own the land the property is built on. What you’re essentially doing is renting the property from the freeholder for a number of years, decades or centuries.

There are over four million leasehold apartments in England and Wales and it's the most common form of ownership.

What is leasehold?

When you own a property leasehold it means you only have it for a fixed period which is laid out in the lease. When the lease comes to an end, the property will return to the landlord. Most apartments are leasehold but houses can be leasehold too if for example, they are bought on a shared ownership scheme.

This arrangement means that in effect you’re ‘renting’ the property from the freeholder or landlord for a number of years. The usual length of time is around 90 to 120 years but it can be as short as 40 years and as long as 999 years. When you sign a leasehold you are entering into a contract with the freeholder and this will set down the legal rights and responsibilities you both have.

These can include:

? Responsibility for maintaining the common parts of the building.

The freeholder (i.e. the person who owns the property and land) will probably be responsible for looking after areas such as the entrance hall and staircase, as well as the exterior walls and roof. However, some leaseholders claim their ‘right to manage’, in which case they make this maintenance their responsibility.

? Payment of maintenance fees

Leaseholders will have to pay maintenance fees, annual service charges and their share of the buildings insurance.

? Payment of ground rent

Leaseholders normally pay a yearly ground rent to the freeholder.

? Giving permission

The freeholder has to give leaseholders their permission for any major works done to the property and they may also decide to impose other restrictions upon the leaseholder, such as not owning pets or subletting

If leaseholders don’t fulfil the terms of the lease – for example, if they don’t pay the fees – then the lease can become forfeit.

Other problems associated with leaseholds

As with any shared scheme there are contentious areas that may cause dispute. For example:

? One in four leaseholders believe they are paying too much in charges.

? Leaseholders often complain that the building isn’t maintained to a high enough standard.

? They feel they have little control over major building works that are done on their property.

Short leaseholds

These can also be a problem. For example, any lease of less than 80 years can start to significantly affect the value of the house. If you have a short lease, the property can decline in value even if property prices in your area are generally rising. This means that fewer people will want to buy it when you resell; it also means that mortgage companies might be reluctant to lend on it.

What is commonhold?

Commonhold is a variant of freehold, created by the Leasehold Reform Act of 2002, which has been designed to prevent some of the worst aspects of leaseholds.

Commonhold is where a multi-occupancy building is divided into a number of freehold units, so each individual flat owns its own freehold. The common parts (staircases and hallways etc) are owned and managed by a Commonhold Association, a company that is itself owned by the freeholders of the flats.

This means there is no superior freeholder, but rather the owners of the flats manage the common and external parts of the property jointly. This protects people both from greedy landlords, and from the problems of short leases.

But, as with any form of community ownership, there are problems with this arrangement too.

Buying the freehold

You can actually ask the landlord to sell the freehold at any time. The steps you take and the rules that are involved depend upon whether the property is a flat or a house. If it’s an apartment you buy a share of the freehold and with a house, the entire freehold. The advantage is that you’ll have more control of the property and it could increase the value. The downside is the cost. Expect to pay upwards of about £5,000.

The future of leaseholds

Government  plans are afoot to ban the sale of new houses as leasehold, so in future only flats can be sold on a leasehold basis – though these reforms are yet to be made law. And in January of this year, it laid out additional proposals to make it easier and cheaper for leaseholders to extend a lease, buy a freehold, or do away with ground rent. Again, it's not clear when these changes will come into effect.

Under the proposals:

? All leaseholders who can extend their lease will have the right to do so by 990 years – and if you do, you won't have to pay ground rent. Currently, leaseholders?of houses?can only extend their lease once, by a 50-year period, while leaseholders of flats can extend leases as often as they wish?for a 90-year period.

? Many who extend their lease or buy their freehold will pay less. A number of charges involved in the cost of extending a lease or purchasing a freehold will either be capped or abolished. At present it can cost £1,000s, or even £10,000s, to extend a lease.

If you are seeking advice on whether a leasehold property is for you then our experts at Grow Property are here to help. https://www.growproperty.co.uk/