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Does it Make Much Difference if the Property I’m Buying is Leasehold or Freehold?

When you buy a property the most basic thing you need to understand is whether you are buying the freehold or a leasehold. With a long-term lease it might seem that there are no practical differences; but there are, and you need to be aware of them. The majority of flats and maisonettes are sold on leasehold basis.

What will I own?

If you buy a freehold you own the house and the land it stands on outright. With a leasehold you are essentially buying the right to sole occupancy of the property for a defined period. When you want to move you sell the unexpired term of the lease to the next owner.

Why does that matter?

With a leasehold property you will probably have to pay a ground rent and service charges for the upkeep of common areas (such as stairwells, foyers, shared access roads etc). These charges are paid to the freehold owner or managing agent and can increase over the years. You may also be prevented from doing certain things such as keeping pets, altering the property or running a business.

Some freehold properties also have restrictive covenants affecting what you can do. However, these are often historical and hard to enforce. With a lease, the rules are set out in a legally binding agreement.

Does the term remaining on a lease matter?

It can matter enormously. The value of a property with a short period remaining on the lease will be reduced – sometimes drastically. Be very cautious if the lease period is less than or approaching 80 years. For one thing, it may make it difficult to get a mortgage. If you plan to extend the lease period make sure you agree this before you sign the lease.

Ater you have owned the property for two years you normally have the legal right to extend the lease by a further 90 years, although you may have to pay to do so.

Are the risks the same?

The biggest risk (falling property prices) applies to both types of purchase. If you buy a leasehold flat, the freeholder will be responsible for insuring and maintaining the external fabric of the building. But remember, you ultimately pay for this through management fees.

As a freeholder you are responsible for all property maintenance and will need to arrange buildings insurance to satisfy your mortgage lender.

What to know before you buy a leasehold property – the essentials

  • How long is left to run on the lease?
  • Is there an opportunity to buy a share of the freehold?
  • Who maintains communal areas and are they doing so to an acceptable standard?
  • How are ground rents and service charges calculated, how might they change in future?
  • Are there restrictions on how I can use or change the property?

Whether you are buying a freehold or leasehold property there can always be unforeseen risks. That’s why it’s important to get professional advice from a team that will look after your interests at every stage and spot any potential problems before you are committed to the purchase.

Contact the experienced Property Team at PowellsLaw today for help and advice.

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