Leasehold Property: Good or Bad?

There have been numerous recent reports in the media concerning problems arising from the ownership of leasehold flats and houses.

What is a Leasehold Property?  

It is a property which is owned by way of a lease and the owner of the lease is known as the leaseholder. The leaseholder has the right to own and occupy the property for a set number of years in accordance with the terms of the lease.

The leaseholder does not own the land upon which the property is built. The owner of the land is called the freeholder.

Leaseholds are commonly found when buying a flat. However, a house can also be sold as leasehold, usually through shared ownership schemes.

What has been happening recently?

In recent years a number of developers of new build properties have been selling newly built houses as leasehold. Following the completion of the new build development the developers have subsequently sold the freehold to the house to third parties, without even consulting the leaseholder.

The sale of the freehold by a developer to third party, although receiving bad press from the media, is legal.

What is the problem?

When a developer sells the freehold to a third party, that third party is buying the freehold solely as an investment. The third party will then charge leaseholders a much higher price should will they wish to buy the freehold. This in turn may put off potential future buyers of the leasehold property.

Are there any other potential problems with leaseholds?

1. Ground rent: clauses in leases incorporating ground rent provisions can often be very complex and may not make clear excessive increases in ground rent charges;
2. Service charges: charges for services provided by the freeholder may be costly and disproportionate to the  actual work carried out;
3. Buildings insurance: the leaseholder will be required to make a contribution towards building insurance and will have no control over the amount of the annual renewal premium;
4. Lease term:  a lease which has an unexpired term of 80 years or less left to run will doubtless cause problems when the property is sold. In addition a third party freeholder will charge a premium to renew the lease term which any prudent buyer will require the leaseholder to pay;  
5. Freeholder consent: the lease may provide for the smallest of alterations to the property to require the permission of the freeholder. The freeholder will doubtless make a charge for providing consent which the leaseholder will have to pay. If the freeholder refuses to give consent this may result in the leaseholder being unable to carry out the planned alterations to the property;
6. Consent to sell: the lease may provide for the freeholder to have to give consent to the sale of the property. The freeholder will make a charge for giving consent which the leaseholder will have to pay;
7. Managing agents: a freeholder will usually appoint a professional managing agent to deal with the day to day management of the provisions in the lease. The lease will provide for the leaseholder to be responsible for the managing agent’s fees.

What can a Buyer who is considering purchase a leasehold property do?

Ensure you receive comprehensive legal advice, explained in plain English, if you are considering buying a leasehold property.

Not all leasehold properties are bad. There are many leasehold properties with happy leaseholders occupying them. The purpose of this article is to highlight a number of leasehold property issues which may cause concern.

If you would like assistance in purchasing a leasehold property please contact our Residential Property team.