What is leasehold?

If you buy a leasehold property, you will have the right to live in the home for a set number of years (specified on the lease), but you will not own the land it stands on. In this arrangement, you are known as a ‘leaseholder’.

With leasehold properties, the land is owned by the landlord, who is called the ‘freeholder’. Once the lease runs out, ownership of the entire property will revert to them.

Leaseholders must get permission from the freehold owner to make certain alterations to the property. They will also have to pay rent each year – known as ‘ground rent’.

What is freehold?

When you buy a freehold property, you become the sole owner of both the building and the land it stands on. There are no time limits to your period of ownership.

As a freeholder, you won’t need to pay ground rent, service charges or permission fees, but you will be responsible for the maintenance of the building.

How long should a lease be when buying a leasehold property?

Your lease is a legal document, which will tell you how long you are allowed to live in the building as well as what you need to pay towards insurance and upkeep.

When first drawn up, residential leases usually last for up to 125 years, although it is possible to have a lease for up to 999 years.

Generally, the longer left on your lease the better, as properties with short leases can be difficult to sell. A lease with fewer than 80 years remaining can seriously affect both the value of your property and the amount it will cost you to extend the lease.

Many mortgage providers will refuse to lend on a property with fewer than 80 years left.

Should you extend the lease when you buy the flat?

You only gain the legal right to extend your lease after living in the property for two years, so if you are buying somewhere with a short time remaining on the lease and you want to get it extended, you have two options.

The first, and safest, option is to ask the seller to extend the lease before you buy the property. Provided they have owned the property for at least two years, they will have the legal right to extend the lease – although it could take time.

The second option is to buy the property and then see whether the freeholder is willing to extend the lease despite you not yet having earned the legal right to request this. This is of course a riskier option as it’s dependent on the goodwill of the freeholder – if they say no, you will need to wait two years. You will only be able to take this path if there is enough time remaining on the lease to meet your mortgage lender’s requirements.

Service charges and sinking funds

When you own a leasehold flat, you will usually pay a service charge to your landlord or management company to maintain any common areas of the building.

This charge generally covers the cost of supplying important services to the building, or for employing a managing agent to do so on the freeholder’s behalf.

While some older leases have fixed service charges that must be paid every year, most newer agreements instead include ‘variable service charges’, which allow the freeholder to estimate the cost for each year. This allows freeholders to raise fees to finance major one-off expenses, for example refurbishing a lift or updating a fire alarm system.

Some leases also have provision for a sinking fund – which is a reserve amount of money (collected in the service charge, or sometimes on the sale of each flat) which should cover any large scale or expensive works that the building needs.

What is ground rent?

In England and Wales, ground rent is traditionally a token fee paid to the freeholder in exchange for renting the land the property sits on.

On older properties, ground rent is usually paid annually and is often a relatively low amount – around £50-£100. Ground rent can either be fixed or escalate over time.

Ground rent should not be a major worry for the vast majority of leaseholders, but there are concerns about exploitative ground rent systems on new-build homes. These schemes often see ground rent costs multiplying over time.

Leaseholder restrictions

The terms of the lease will need to be checked for any restrictions about what you can and cannot do in the property. For example, you may not be allowed pets, play loud music between certain hours of the day. You may need to ask permission from the Landlord to alter the property. For example, if you wish to carry out structural alterations. The landlord may not agree with the request and often charges a fee to even consider the request made.

How can we help?

We will explain the legal process and documentation, ensuring that you fully understand the leasehold process. By working with us, you can have peace of mind that your legal requirements are met, and your rights are protected.