A leasehold property means that you own the right to occupy a home for a set period, not the property itself. This period is typically long – often 99 years or more when a property is new – but it’s not indefinite.
How Does Leasehold Work?
- The Lease: This is a legal contract between you (the leaseholder) and the freeholder (the person who owns the building and the land it’s on). It sets out the length of the lease, your rights and responsibilities, and the freeholder’s obligations.
- Ground Rent: You’ll usually pay an annual fee to the freeholder, known as ground rent. This can vary significantly.
- Service Charges: You might also pay a service charge to cover the maintenance and upkeep of the building, shared areas, or any communal facilities.
Important Considerations for Leaseholders
- Lease Length: It’s vital to check how many years are left on the lease. A short lease (e.g., under 80 years) can be problematic and affect the property’s value.
- Ground Rent Increases: While some older leases allow the freeholder to increase the ground rent, new leasehold properties in England and Wales will have a peppercorn ground rent, meaning it’s effectively zero.
- Freeholder’s Permissions: You might need the freeholder’s permission for certain changes, such as renovations or subletting.
- Buying the Freehold: In some cases, leaseholders can join together to buy the freehold of their building. This can give them more control and avoid potential issues with the freeholder. The Leasehold and Freehold Reform Act has made it easier and cheaper for leaseholders to do this.
Leasehold vs. Freehold
The majority of purpose built flats in England are held as leasehold. If you wanted a mortgage to buy a flat above a shop, the flat would be leasehold.
Unlike a leasehold, owning a freehold property means you own both the building and the land it sits on outright. There’s no time limit on your ownership, and you don’t have to pay ground rent or seek permissions for alterations.
The Leasehold and Freehold Reform Act has introduced significant changes to leasehold law, giving leaseholders more rights and protections. If you’re unsure, seek professional advice from a solicitor or financial advisor.
