When it comes to leasehold vs freehold, there is a lot of confusion amongst property buyers.
Many buyers are worried about purchasing property that isn’t freehold as they won’t own the land the property is on, instead having to pay additional charges to rent the land from the owner. But with one in five of all properties in England leasehold, buying leasehold property is more common than you think.
First of all let’s just get a better understanding of what a leasehold and a freehold is.
What is a Freehold?
If you own the freehold of the property it means that you own the property and the land outright. Owning the freehold means that you don’t have to pay ground rent, but you are solely responsible for the maintenance of the building and all the cost associated with that.
What is a Leasehold?
If you own the leasehold of a property it means that you have a lease on the land from the freeholder. In England and Wales, flats are most commonly owned on a leasehold basis. This lease is usually granted for a number of years – it can be as short as 40 years or as high as 999 years! As a leaseholder you are responsible for paying annual ground rent and a service charge to the freeholder.
Consider the Length of Lease
As a property buyer it’s important that you consider the length of the lease. Leases are usually long-term and can be up to 999 years. Be cautious when a lease is 85 years or under as this can dramatically impact the value of the property – reselling the property on such a short lease will prove a challenge and mortgage lenders might be unwilling to lend on it, which will put you in a very difficult situation. The standard length of lease you’ll want to look out for is 250 or more years. These type of leases will never really present you any problems and will certainly not put off any potential buyers when the time comes to sell. Buying a new apartment will usually come with a 250 year lease, so as a buyer this won’t affect you and your rights at all.
Your Lease Obligations
As we’ve established that the lease doesn’t affect your position as a buyer, you still need to be aware of your requirements as a leaseholder. The owner of the freehold will be responsible for maintaining the common parts of the building. So for apartment owners this will mean that they are responsible for the up keep of the entrance hall, corridors and shared outdoor space as well as exterior walls and roof. As a leaseholder you will have to pay a service charge to cover of this maintenance, in addition to your fixed ground rent. These additional charges can vary so before buying an apartment make sure that you find out all the costs – if there are any communal facilities, for example a gymnasium, and a concierge service, your service charge will also need to cover these costs.
Do your Research!
Many property buyers are unaware of the additional costs that owning a leasehold comes with, with leaseholds getting some negative attention in the press with stories of property owners feeling exploited. As a buyer, make sure you do your research – speak with the property agents and find out actually what all the costs are so you remain in control of the situation. Find out what exactly is covered in the service charge and find out the length of lease.
Property Guru Top Tip: Owning a leasehold apartment really isn’t scary at all! It’s definitely not uncommon, with 2.9 million leasehold flats in the UK alone (The Department for Communities and Local Government). Just make such to do your own due diligence and don’t be put off by ground rent and service charge (you would probably have to pay for building maintenance at some point to maintain a freehold!)
If you are like our usual investor and you want to purchase in a development that will be maintained and remain attractive over a long period of time therefore bringing you yields for many years ahead then Leasehold is the right choice for you!
To find out more about our range of leasehold properties, contact us today to speak with our Property Gurus.Back to Guru articles