Should I buy a leasehold property?
When buying a property, you will have the choice of either a leasehold or freehold purchase.
Leasehold is a method of owning property for a fixed term, yet you do not own the land on which the property stands. Many flats and maisonettes are leasehold properties. In contrast, a freeholder owns the property and the land on which it stands outright. Freeholders don’t need to pay service charges for the maintenance of the building and do not need to worry about the lease running out.
As the leaseholder, you are not responsible for maintaining the building. This falls under the remit of the landlord and his appointed managing agent. The service charge that you pay as a leaseholder goes towards maintenance which could include repairs to exterior walls and the roof of the building, maintenance of the lifts and staircase, and the upkeep of the gardens and other communal areas.
Once the lease expires, ownership of the property returns to the freeholder unless the lease is extended.
When a leasehold property is purchased, the buyer will take over the lease from the seller of the property. As the buyer of such a property, you will need to consider how many years are remaining on the lease and for short leases, what the cost of extension would be, how much you will need to budget for service charges and any other related costs. For short lease properties, you may struggle to find a mortgage so this will have to be put into the equation too.
As the leaseholder, you may be able to buy a share of the freehold from the landlord. If at least half of the freeholders in your building agree to this, then you can serve notice on the landlord to do this. You will then get more control over your home and costs and will be able to extend your lease to 999 years.
Recently, a lot of new build houses have been sold on a leasehold basis. In some of these cases, ground rent payment has increased with length of ownership often catching the leaseholder by surprise. In some cases, basic works to the property, for example, putting up a satellite dish, would require the freeholder’s approval costing the leaseholder hundreds in fees. Other demands have included the payment of fees for having pets and to even re-mortgage the property.
As a result of this, the government has proposed that the future sale of new build leasehold homes could be banned. Until this happens, if you are looking to buy a leasehold property, you need to ensure that you read any clauses carefully. Often, it makes sense to speak to some existing leaseholders at the development to get a sense check on any ‘hidden’ service charges and also the property that you are about to purchase.