Leasehold or Freehold?

Leasehold v freehold

You may have seen this week’s news about leasehold and freehold properties and thought, ‘That’s nothing to do with me.’ Well, it could be.

A freehold property is where you own the building and the land it stands on. You own your castle.

Leasehold is where someone else owns the land your property stands on and also the building. You own a lease which allows you to live in your house or apartment for a period of time defined in the lease.

Most flats are leasehold and most houses are freehold. Recently though a number of developers have been selling new build houses as leasehold. Why? Well, with Leasehold there are a number of ways for the landlord to make money from the apartment or house owner such as ground rent, alteration fees, letting fees, etc. The developer then sells the right to collect these fees to a third party making them more money for the developer.

Leasehold makes sense in a lot of occasions for apartment owning as you have a right to live in an apartment but technically someone else owns the building. Should there be a problem with the building it will ultimately default back to the building owner to repair, but you’ll have to pay a portion of the cost.

Some of the things you may have to pay to the landlord if you are leasehold:

Leasehold Ground rent

This is fairly standard in most leasehold leases. It is an amount you have to pay the landlord each year. Check your lease well as some leases have a multiplier, for example, you pay £75 per year for the first 10 years then every 10 years it doubles. We have one site where the ground rent is £75 but in 50 years it will have multiplied up to £1,200.

Leasehold Alterations

If you want to remove a wall through to replacing flooring or a new bathroom you may need permission from the landlord. If this is the case they have a right to charge you for giving permission. They can also insist on you using surveyors, etc.

Leasehold Letting fee

If you want to let your house or apartment out you need to check if the landlord has to give permission. The lease will call this “subletting”. Again, you may have to pay up to rent your home out.

Leasehold Service charge

Some leases allow the landlord to choose the management company for your site or to manage it themselves. Be careful with these “two party leases” as it is a fight to remove the landlord should you not like how things are run. We are currently talking to a number of sites in this position.

Leasehold Notice fees

When buying or selling the landlord has to consent to this happening. This is called a notice fee.

Leasehold Lease renewal fee

A lease can be anything up to 999 years in length. The norm now seems to be 125 years. A mortgage company like there to be 50 years left on the lease once the mortgage is paid off. You have a right in law to extend your lease but you’ll have to pay a market rate to do so. This is arrived at by the landlord and surveyors. Be warned it can be steep! Lease extension calculator

So when looking at leasehold properties have your eyes open and ask your solicitor the following questions:

  1. What is my ground rent now and what will it be in 30 years?
  2. Is there a subletting clause?
  3. How long is the lease and how long is left on it?
  4. Have any historic alterations been made that the landlord is not aware of?
  5. Should you be thinking of alterations get your solicitor to enquire what the landlord will charge for these.

Revolution Property Management is always happy to give guidance on leases should you have any questions.

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