Leasehold properties: your rights and options
If you are thinking of buying a leasehold property in England and Wales, you are likely to face certain obligations – but you are also entitled to a number of rights.
Millions of people who own homes in England and Wales do so on a leasehold basis. This means that, while their name may appear on the title deeds, the land on which their house or flat is built – perhaps as well as the fabric of the building itself – belongs in the long term to a freeholder. The leaseholder is only the owner of the home for the period remaining on the lease, although this can often be several decades or even hundreds of years.
Leasehold ownership is common in blocks of purpose-built flats or where a larger property has been split into apartments. This is because it makes sense for a freeholder or landlord to be responsible for things like shared areas – communal gardens or hallways, for instance. But it is also possible to own a house as a leasehold, and developers have increasingly been selling new-build homes on this basis.
What is a lease?
When you buy a new home, you will be told whether the purchase is on a freehold or leasehold basis. If the latter, you’ll be informed how many years remain on the lease. In general, buyers will struggle to obtain a mortgage for properties with less than 70 years remaining on the lease.
The lease sets out your rights and responsibilities with regard to living in the property. For example, you will typically be expected to pay a certain amount of ground rent every year to the freeholder; the terms of the lease will state what the current ground rent rate is, as well as whether it will rise over time.
You may also have to pay money on an annual basis as a service charge, for example to help with the upkeep of communal areas or buildings insurance for a block of flats. The lease should be clear what areas of maintenance and upkeep are the landlord’s responsibility and which are the leaseholder’s.
The freeholder may also require leaseholders to pay money on a regular basis into a ‘sinking fund’, which is used to cover the cost of major or unexpected works, such as roof repairs. The amount of these contributions may be set out in the lease, and, even if they are not, they should be ‘reasonable’ in the eyes of the law.
The lease may also place significant restrictions on your ability to rent out your property, as well as to make structural changes or even to own pets – in some cases, the freeholder’s consent may be required. It is vital that you check with your solicitor during the homebuying process to ascertain the exact terms of the lease.
Extending a lease
The less time that is left on your home’s lease, the less valuable that lease – and therefore the property – is. But once you have owned a leasehold home for two years, you have a legal right to apply to extend the lease, provided you are a qualifying tenant (which usually means the original term was for more than 21 years).
This can be especially important if you wish to sell your home at some point in the future: it can be hard to sell a property with a lease for less than 80 years, because of the difficulty obtaining a mortgage and buyers may be deterred unless arrangements are made to extend the leasehold.
Normally, leaseholders have the right to extend their leases for 90 years on the current terms – although it is possible for the freeholder and the leaseholder to agree a much longer extension if they wish. You will have to pay a certain sum to extend your lease: how much will depend on factors such as the property’s value, but in many cases this can run into thousands of pounds.
Agreeing a lease extension can be a time-consuming process, so it is well worth getting started as early as possible and certainly well before putting your property on the market.
The government’s Leasehold Advisory Service website has information about extending a lease.
Buying the freehold
In some cases, groups of leaseholders – for example owners of flats in a block – may decide to team up to buy the freehold of their homes from their current landlord. Indeed, they may have a legal right to do so – for example if the group represents owners of at least half of the flats in the block. The price that the group will have to pay to acquire the freehold is set out in a formula in the 1993 Leasehold Reform, Housing and Urban Development Act; again, this will be based on factors such as property values and will normally require the services of a specialist surveyor to calculate.
Any group that joins forces to buy a freehold in this way will have to decide how the freehold is going to be held; this is often done by setting up a management company in which all owners have a stake.
The Leasehold Advisory Service offers detailed information on ‘collective enfranchisement’ (buying the freehold of your building).
Freehold purchases can also be made by individual homeowners, such as those who live in leasehold houses. As with extending a lease, this can be an expensive process – but again, it is one that has the potential to add considerable value to your property.