In England and Wales, there are two primary types of property: leasehold and freehold. The difference between the two essentially all boils down to who owns the land on which the property is built.
Let’s take a look in a little more detail:
Freehold
When you buy a freehold property, you stand to own the property outright, including its land. A freehold estate will be the property of the owner, permanently, until it is disposed of.
It’s advantageous to own a freehold property as it ensures you own a property outright and don’t face the threat of it depreciating in value over the long term. However, it does mean that you are responsible for paying the full amount of all upkeep costs on your property.
Leasehold
When you buy a leasehold property, you do own the property, but only have the right to occupy the property for a set period of time, according to the terms of a legal agreement of the lease. This will also specify how many years a person owns a property before ownership reverts back to the landlord or ‘freeholder’. A landlord can be an individual or a company such as a local authority or housing association.
Flats are the most common type of property to be owned on a leasehold basis, although it is known that houses or rooms above commercial premises can also be leasehold.
Leases can vary in length, and are usually between 99 and 125 years from the original sale, although they can last as long as 999 years. Owning a longer lease on a property is a valuable asset as properties with longer leases will typically enjoy a higher price. If your property has 80 years or less to run, we strongly advise that you apply to extend it.
A property with a shorter lease term can make it difficult to sell, due to mortgage companies being reluctant to finance a home near the end of its term. Howells Solicitors have a team of conveyancing experts who specialise in all areas of conveyancing and are perfectly placed to help you with the lease extension process.
How to Extend the Lease on a Leasehold Property
When the lease expires, ownership of the property will revert back to the original owner of the land. However, in England and Wales there are laws that allow you to extend the lease, so that the property maintains its value.
You have to own a leasehold property for two years before extending, but adding 90 years to the lease can be relatively simple and a good investment compared to the drop in value should you decide not to. The cost can seriously vary depending on the length of the lease available and your ground rent, but will usually be between £3,000 and £20,000.
If you’re looking to buy a leasehold property, it’s highly recommended getting expert legal advice. Your solicitors will be able to help you consider the costs and practicalities of extending a lease.
Read more: FAQ Series: Should We Consider Buying the Freehold on Our Home?
Other Things to Consider when Choosing to Purchase Leasehold
The Costs Involved in Owning a Leasehold Property
Usually, when you own a home on a lease, you’ll be expected to pay a set amount every year to cover for service charges and running costs. These charges will vary depending on how many communal areas are available near the property and how frequently they need maintaining.
Leaseholders may also have to pay small lump sums if the landlord decides to renovate the property. Although, any work that costs more than £250, or lasts longer than a year at a cost of more than £100 per year, must be approved by the leaseholder before it starts.
Some other landlords may also demand that you pay:
- Ground rent
- Insurance that the landlord has arranged
- Any administration charges
Any fees are usually agreed between the landlord and a leaseholder before a sale is completed. As a result, if you’re buying a leasehold property it can be just as important to find the right landlord as it is to find the right investment.
Many landlords employ a managing agent to maintain the communal areas of the property; this can lead to higher costs and therefore an increased service charge. Disputes between leaseholders and freeholders can sometimes arise as the decision on what works need to be done, who will carry out the works and also the costs will ultimately remain with the freeholder or managing agent.
The leaseholder will own the property and everything within it, but not the external or structural walls or the land and grounds of the property. The landlord or freeholder retains ownership of this throughout the period of the lease and it is their responsibility to maintain it. The costs of doing so are recovered from the freeholders in service charges.
Should the leaseholders wish to make any significant alterations to the property, or keep pets at the property, the landlords or freeholders consent will usually be required. There may also be a cost for this decision, which is quite common amongst housing associations. This information can be found again in the leasehold agreement.
Read more: FAQ Series: The Cost of Buying a Leasehold Property
Selling a Leasehold Property
It is important for those intending to purchase a leasehold property that, once they decide to sell the property, they are likely to find that the costs involved can be significantly higher than if the property were freehold. The obvious increase in the cost of selling a leasehold property is that in legal fees, as a result of the additional work involved in these transactions.
What you may not be aware of are the costs for the landlord or managing agent to provide information on the service charge and ground rent of the property. These costs can vary from landlord to landlord but can sometimes lead to the sellers having to pay anywhere between £50 to £350 for this information.
The same is also true for notice of transfer fees, these are fees that the seller will have to pay the freeholder (landlord) for the lease to be transferred into the new owners’ names. The amount can sometimes be specified in the lease, but it is not uncommon for additional administration fees to be added by the freeholder. As above the costs can vary, and the freeholder can charge any amount so long as they can prove the amount charged is reasonable.
Previous Client Questions in Relation to Selling Leasehold:
Q: I am selling a leasehold property and my solicitor has asked me to pay an additional £350 for the management pack. It this correct? It seems wholly unfair that I have to pay this as an additional expense on top of the fees already payable, especially when it wasn’t included in the estimate provided.
A: Leasehold properties are run by management companies who are responsible for collecting ground rent and maintaining the building together with its common areas such as gardens and private estate roads.
A management pack is required when selling the property as it contains information detailing the expenditure for the building, together with any arrears that may be due on completion. The management pack will also provide details of any past work carried out or any future works that may be required for the building ranging from new landscaping to painting the building or replacing the roof. Each unit will be responsible for a proportion of the cost and the managing pack will inform the buyer of their future liability.
The cost of a management pack does vary from company to company. Unfortunately, there is no standard cost for the management pack and they generally range from around £100 to £350 which is why it is impossible to estimate its cost from the outset of the transaction.
It is vital that this information is obtained at the beginning of the transaction as it will help avoid any unnecessary delays, and it is also important that you use a solicitor experienced in the sale of leasehold flats to help you through the process.
How to Tell If a Property is Freehold or Leasehold
It’s very easy to check whether a property you’re interested in is freehold or leasehold. You can either ask the estate agent that is selling the property, or visit the Land Registry website which will tell you when the property was last sold, its sale price and whether it is freehold or leasehold.
When you’re comparing leasehold and freehold, there is no hard and fast answer. However, it’s essential to get the right legal advice, tailored completely to your situation. Speak to Howells Solicitors today about your next purchase or extension of your leasehold.
