Leasehold vs Freehold
When you have the right to freehold of your house, this means you own the property and the land on which it is situated. If the property you own is leasehold, you are the owner of the property, but not the land or the building and you must be liable for ground rental to the freeholder.
What is the meaning of leasehold?
You’re buying an agreement with the freeholder in exchange for the right to reside in the house for a specified amount of time. The lease won’t legally be yours. property in full, but the freeholder (or the landlord) will still own the land it is situated on. Leasehold is the norm when purchasing apartments or flats since it’s part of the larger structure.
There are a lot of leasehold homes has increased in recent years, particularly new constructions that are sold directly by the developer. On July 17, 2017, the government pledged to bring an end to the poor leasehold practices and promised to prohibit the selling of leasehold new-build homes (although it’s still not yet be implemented into UK legislation). If you’re purchasing in Scotland there isn’t an issue since leaseholds were abolished in 2004.
Many homeowners are trapped in leasehold homes they can’t afford to live in and can’t sell. We conducted a survey of over 1,000 homeowners who purchased a leasehold home to understand the scope of the issue that has resulted in thousands of Brits stuck in agreements with third-party landlords.
Contact Leasehold Services Ltd if you’re in this predicament.
What is the term ground rent?
This is a set amount of money that is paid annually to the freeholder. It could be at a fixed rate or an the rate of escalating. Fixed rates remain constant throughout the length of the lease, whereas increasing rates could see charges double in a fixed time frame, and sometimes at times 5 times every year.
Our study of leasehold homes discovered the ground rent to be among of the major complaints of leaseholders. Nearly half the leaseholders we interviewed did not realize they were paying ground rent that might increase when they bought the property.
It is crucial to know all the details regarding the rent you pay in order to avoid any unexpected expenses that may arise in the near future. Your conveyancer, your agent or solicitor will be able advise you on the existence of an option to review the rent in your lease, and explain what it means to you. The price associated with the rental might be negotiated, so make sure you inquire with your agent or developer if you’re buying an entirely new construction.
Service and maintenance charges
This is used to fund maintenance and upkeep in communal spaces. In a block of apartments it is possible to pay for the external and internal upkeep of common areas like elevators, hallways, gardens as well as building insurance.
The amount you pay is typically fixed , but it can change from every year. Be sure to consult your lawyer or conveyancer to clearly explain the charges and ask how the administrator of the lease has plans for work that you’ll have to pay for.
Leaseholder limitations
Review the lease’s terms of lease to see if there are any restrictions on what you are allowed to do within the building. For instance for a flat it may not be permitted to keep pets in the house or hang your laundry out on the balcony.
There could be other items that you must seek permission from the freeholder like extensions or loft conversion. If you ask for permission the freeholder must not refuse the request without reason, but you might have to pay a fee before you can begin work.
What does the word “freehold” mean?
If you have the freehold for a building that means you own everything, including the mortar, bricks, and ground. So you comply with the laws of the Government and regulations, you’re basically free to do what you like with your garden and the property. But it also means you’re solely responsible for maintaining the condition of the structure and grounds.
The majority of houses available are freehold. The advantages of the tenure include being able to sell your property at any time and not needing the permission of the owner to make minor adjustments or be charged to make minor changes.
Do I have the option to purchase the freehold?
Before you make a commitment to purchase leasehold properties, you should investigate who is the owner of the freehold, and determine if it is susceptible to being sold and who else. If you’re purchasing an existing building, you can contact the sales office and ask them to give you an estimate to purchase the freehold.
What is the remaining time to the lease?
The length of leases may vary, however, a typical lease starts at 99-125 years , however it could run up to 99 years. You should find out what the length of the lease you’re buying in particular if you’re purchasing an older lease, which may have been running out of time. A lease that is short (under the age of 80) may affect your capacity to qualify for a mortgage and in order to extend the lease, you have to live in the home for a minimum of two years.
The number that you should keep in mind is 80 years.
If a lease falls below 80 years, the price to extend it is a lot higher. It is recommended to purchase a property that has at least 83 years remaining on the lease. This allows you to have enough time to reside in the home for two years should you later decide to extend your lease.
Leasehold property guidance
Developers may transfer the freeholds of whole development to third-party firms who then charge a higher fee to the homeowner once they decide to buy the freehold. The spiralling fees and the burdensome clauses have led to banks and building societies not granting mortgages on leasehold properties, making them extremely hard to dispose of.
Certain leases contain clauses that restrict the use of the property, and certain restrictions may not be evident. Be sure to read the lease thoroughly and if you’re not sure of something, consult your solicitor right away. You must know exactly what you’re agreeing to, what you’ll have to pay each year and what cost increases are due.
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