What does leasehold mean when buying property?

MOST flats in England and Wales are sold as leasehold, and a minority of houses.

It gives owners the right to live there for the number of years laid out in the lease.

The building and land it sits on belong to the freeholder, you pay for the upkeep of external walls, roof and shared spaces.

So, it’s important to know exactly what they are should you end up buying one.

Here’s everything you need to know about them and how they are different to freeholds.

What is a leasehold?

Owning a leasehold on a property means that you have the right to live in the property for a set period of time.

In the UK, the standard amount of time is 125 years, but it could be more or less.

Unless you extend it, the ownership of the property returns to the landlord, also known as the freeholder, when it’s up.

You may also have to ask for permission from the person who fully owns the property before making changes like adding an extension or owning a pet.

Around 8% of houses are leasehold properties in England, compared to most flats.

In other words, they’re common and not always possible to avoid, but it’s important to know what you’re getting yourself into.

What does a leasehold mean when buying a property?

A leasehold agreement makes sense when living in a block of flats so that everyone living in the property can own their own flat and part of the stairwell or a shared area.

It also means that any upkeep of a shared area, including the exterior walls and the roof, is the freeholder’s responsibility, so you won’t have to pay for any repairs in those areas.

But until recently, houses could be built and sold with this kind of agreement, which has led to some unfair treatment of leaseholders.

What is a freehold?

Most houses are sold as freeholds as it is the most straightforward way of owning a home.
Owning the freehold on a house means that you own the house outright.

As a freeholder you own the land the property is built on, a freehold also entitles you to live in a property indefinitely.

This even includes the air space above the house going up around 500 feet and the ground underneath the house.

Maintaining the property is entirely your responsibility, so you must pay for all repairs.

Why are leaseholds controversial?

One of the main problems with leaseholds is a fee called ground rent.

Ground rent is a fee paid by the leaseholder to the freeholder as part of the contract between the two.

In the past, the ground rent could be a trivial fee, such as £1 a year.

But in the last 20 years, property developers started to charge ground rent of £200 a year and more.

Developers also started to include clauses in leasehold contracts to ensure that the ground rent would double every ten years.

If you find a house you want to buy and it is a leasehold, you should still consider buying it.

Just check with a solicitor that the leasehold contract doesn’t contain clauses for extortionate ground rent or the power for the landlord to charge you extortionate fees for trying to extend the house or own a pet.

There are even some benefits to having a leasehold agreement.

• Certain repairs are taken care of by the freeholder.
• If you have an issue like noisy neighbours, your freeholder must take the issue directly to the police.
• The freeholder sorts the building’s insurance.