There's an estimated 4.8 million leasehold properties in the UK. Let's look at what a leasehold is and what you need to consider when buying one.
FAQs
At Ocean we sell lots of leasehold properties across Bristol, every year. Unless you've owned a leasehold flat or house, you might not know much about what the term actually means. Here's our answers to some common FAQs.
If you're considering buying a leasehold property and have any questions or concerns – get in touch, we'll be happy to help.
There are two main forms of property ownership: Freehold and Leasehold.
Leasehold ownership most commonly applies to flats and apartments and overcomes the issue of multiple homes occupying the same plot of land, often above each other. Though it can sometimes apply to houses too.
With a freehold you own the building and the land it stands on until you sell it. With a leasehold you own the property, but not the land it sits on, and only for the length of your lease agreement with the freeholder (sometimes called the landlord).
If this bit sounds scary, don't worry – leasehold properties are very common and there are laws in place to protect homeowners and allow them to extend leaseholds or even buy the freehold. Your conveyancer will also advise you if there are any problems with the lease.
If the property is a flat, usually you do not own the shared parts of a building such as the hallways and stairs, parking areas, and outside space. You will not be individually responsible for these areas and often a management plan will exist to maintain them.
Your lease will set out exactly who owns what, and importantly, who is responsible for maintaining the structure of the building and shared areas.
A requirement of the lease will likely be to pay ground rent to the freeholder/landlord.
Your lease will set out how much ground rent you'll have to pay.
Ground rents can be fixed, often with older, converted properties. There may be a 'peppercorn rent' at a nominal amount payable each year. Or commonly a rate of no more than about £200 a year.
However, some developers and freeholders of modern apartment buildings set ground rents higher and/or setting escalating rents, which increase in a way set out in the lease.
The freeholder is usually responsible for maintaining and insuring the whole building, especially in modern flats or apartments.
Leaseholders pay a service charge to cover their share of the building's insurance and the cost of maintaining the building. This may include the services of contractors such as cleaners, landscapers, or professionals for remedial building works.
Your lease will confirm how much service charge you must pay initially, and how often. The service charge will usually increase every year, largely depending on the work that needs to be done for the building's upkeep and maintenance.
Your service charge may be paid in advance (based on how much your landlord estimates repairs and maintenance will cost) or paid in arrears (after the landlord has paid for the work).
Commonly with smaller, older buildings, some leases require leaseholders to pay into a reserve or sinking fund each year, as well as paying the service charge. This is used to pay for items that may cost a lot to repair or replace, but which may not need work every year.
In Bristol, typically lease length ranges from an initial 125 years to time remaining on a 999 year lease.
The first person who buys a leasehold property is given a lease that’s valid for a certain number of years.
Every time the property is sold, the same lease is passed to the new buyer, so the length is reduced.
Lease lengths under 80 years
Whilst it's uncommon, it is worth noting that if your lease is under 80 years, it could mean:
- you cannot borrow as much from a mortgage lender, or get a mortgage at all
- your mortgage interest rate increases when you re-mortgage, or you may not be able to remortgage
- you find it harder to sell the property
- the value of your property decreases
Generally, the shorter the lease gets, the more its value will decrease.
Lease extensions can be made on an informal basis or a formal basis.
If your freeholder is willing to extend your lease informally, it is still advisable to consult a solicitor before you agree on the terms of the new lease.
You are likely to pay a lower premium than if you were using the formal process, but be aware that sometimes the ground rent may be changed to an 'escalating ground rent', which may mean you pay more in the end, and you could then have difficulties when selling.
You’ll need to pay -
- the freeholder/landlord’s costs
- a fee for extending your lease, which will depend on the length of the lease, the value of the property and the ground rent
If you use a solicitor, you’ll need to pay them, and you may need to pay for a property valuation too.
Contact Ocean Conveyancing if you would like to discuss extending your lease, we'll be happy to help.
The formal process is complex and you’ll need the help of a valuer and a solicitor.
If you own a flat, you’re likely to have the right to extend your lease if -
- you’ve lived in the property for at least two years
- the original lease was for more than 21 years
- the landlord is not a charitable housing trust which is providing your property as part of the charity’s work
- the lease is residential and not for business purposes
You’ll need to pay -
- for a valuation
- for legal advice from a solicitor
- the landlord’s costs
- a fee for extending your lease, which will depend on the length of the lease, the value of the property and the ground rent
The extension will usually be for 90 years.
Extending your lease can be expensive. The shorter your lease is, the more it will cost you to extend it.
Contact Ocean Conveyancing if you would like to discuss extending your lease, we'll be happy to help.
Leasehold covenants are a legally enforceable set of rules regarding things you have to do or are not allowed to do with a property.
All types of homes can have covenants, but there are often more of them in leasehold flats and apartments.
There are two types of covenants in a lease:
- restrictive covenants
- positive covenants
Positive covenants are something someone must do. For example, the freeholder or landlord might have to paint the outside of the building every five years, and the tenant must pay ground rent and service charges.
Restrictive covenants (also called restrictions) stop you from doing certain things which might affect the ‘use and enjoyment’ of the building for other leaseholders in the building. These could include -
- renting out a room or the whole flat
- laying hard flooring (or taking up the carpets)
- running a business from home
- making noise after certain times
- keeping a pet
- making structural alterations or renovations
When considering buying a leasehold property check the restrictions in the lease carefully to make sure they do not prevent you from using the property in the way you want to.
The lease may say that you can ask for permission to do something prevented by a restriction. You’ll need to ask the landlord (or Managing Agent employed by the freeholder/landlord) for permission, and the lease will usually say that the landlord should give consent where it would be reasonable.
The landlord will usually charge for this. A solicitor can help you apply for permission.
If you do not comply with the restrictions or the terms of any permission, your landlord may be able to take legal action against you. They can also take action if ground rent or service charges are not paid.
If you own a flat or apartment, you may also own a share of the freehold. This is more common with older converted properties than modern apartment blocks.
If you do not already own a share, you may be able to get together with other leaseholders to buy the whole of the freehold. This is called leasehold enfranchisement or collective enfranchisement.
The process can be complicated and we recommend employing a solicitor to help you. You’ll need to set up a management company, with the other leaseholders, which will buy the freehold. Every flat-owner who has agreed to apply for enfranchisement owns shares in the company.
The benefits of owning a share of the freehold include -
- being able to set the length of the leases and extend them
- being able to make collective decisions about repairs and maintenance works
- not having to pay ground rent
There are certain requirements to qualify for this right. As a guide:
- the building must contain at least two flats
- at least two-thirds of the flats must be owned by tenants whose leases were over 21 years when first granted
- no tenant can own more than two flats in the building (either jointly or solely)
- at least three-quarters of the building must be used for residential purposes
- at least half of the qualifying tenants must apply for enfranchisement
If you meet the requirements, you can apply to the landlord to buy the freehold. Again this is a complex and potentially expensive process, so we recommend asking a solicitor for advice.
Leasehold houses
If you own a leasehold house, you may also have the right to buy the freehold. Each case is different, but generally, to qualify -
- the original lease must have been for at least 21 years
- you must have owned the house for at least two years
If you need any help or advice on leasehold enfranchisement or buying a freehold, Ocean Conveyancing will be happy to advise. Get in touch
The freeholder/landlord may appoint a managing agent to look after the property for them.
Managing agents are individuals or specialist companies that charge a fee to manage the property on behalf of the freeholder(s). They are typically responsible for making sure that the building is insured and maintained, and collecting the service charge.
If you and the other leaseholders own the freehold or have the right to manage, you have the option to appoint a managing agent, though this is fairly uncommon.
Pros
What are the advantages of buying a leasehold property?
Leasehold properties are typically flats and maisonettes, or apartments which are usually more affordable than freehold houses in the respective areas. Making them an especially good option for first-time buyers, single buyers and couples.
It usually requires a lower deposit than a freehold due to the property value, which makes it easier for first-time buyers to get on the property ladder.
Apartments are generally more readily available in metropolitan areas, for those that enjoy all of the benefits of 'city living'.
Including proximity to your workplace, or having easy commute options.
Many developments with leasehold apartments have a sense of community among residents. With shared facilities and communal spaces, they provide the opportunity to get to know your neighbours.
The upkeep of the building and communal areas is the responsibility of the freeholder.
All leaseholders are required to pay a service charge to cover these and other maintenance costs. Assuming the freehold is well managed, with a sinking fund in place for larger capital projects (new roof, painting/decorating, window replacements etc), you’ll be able to focus on home ownership without worrying about building works.
With all the maintenance and upkeep taken care of via professionals appointed and supervised by the freeholder or their management company, it leaves leaseholders to enjoy the shared facilities worry-free.
As the value of property tends to appreciate over time, owning a leasehold apartment in a prime location can yield a significant return on investment if you decide to sell in the future. Popular cities generally attract a consistently high amount of new first-time buyers.
This can of course be said of freehold property too. But leasehold apartments can be easier to rent out, providing a source of passive income should you have the opportunity to move without selling, if only for a limited period.
It may transpire you'll be able to maintain ownership and earn an income from your leasehold property.
Cons
What are the disadvantages of buying a leasehold property?
As explained above, you will need to consider the inherent costs -
- Ground Rent
- Service charges
- Sinking funds
All of which can increase, sometimes annually. And consider the cost of potentially extending the lease, although this is very uncommon in Bristol.
If your freeholder wants to carry out major works to your property or common areas, if it's stipulated in your lease that you need to share the cost then you'll have to pay your respective portion of the total cost whether it's convenient or not.
Please note that a ground rent ban came into effect in 2022 banning ground rent on all new leases and for all lease extensions.
When you buy a leasehold property your conveyancing fees will be higher than buying a freehold home as there is much more that your solicitor or conveyancer will need to check.
You will also have to consider time frames, leasehold properties can take considerably more time to legally process than an equivalent freehold sale and purchase.
As we have explained above, there may be restrictive covenants.
Restrictive covenants (also called restrictions) stop you from doing certain things which might affect the ‘use and enjoyment’ of the building for other leaseholders in the building. These could include -
- renting out a room or the whole flat
- laying hard flooring (or taking up the carpets)
- running a business from home
- making noise after certain times
- keeping a pet
- making structural alterations or renovations
Current property laws dictate that once the lease falls below 80 years, a property is considered to have a short lease.
At this point the shorter the lease becomes on a property, the more it decreases in value. Though there is the option to extend the lease, this is subject to certain conditions and there can also be numerous other issues with purchasing or selling a short lease property.
This issue is rare in the Bristol area.
We hope this article was useful, if you would like to discuss any aspect our sales or conveyancing teams will be happy to help.
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