The Leasehold / Freehold Debate

4th August 2017

If you have been following the news recently this has been a major news item. It is a topic I am familiar with but most people probably will not be and why should they be. When you buy a property you are told it is held either on a freehold or leasehold title which probably means very little to you. So lets explain the difference between the two:

Freehold - This is when you own the property outright including the land it is built on. It is the most complete property ownership.

Leasehold - If you are a leaseholder you own the property and land for a period of time agreed with your freeholder , paying a ground rent. When the lease ends the property and land returns to the freeholder.

There a are millions of property owners who own their properties on a leasehold basis . Leases on residential properties can range from 99 years to 999 years at a nominal ground rent which could be a peppercorn or a monetary sum of 10p per annum to £100 per annum. In other examples ground rents may well be indexed linked or reviewed on a regular basis.

As a leaseholder you may also have covenants in the lease which oblige you to seek consent for improvements ,extensions ,transfer, sale and many more. In return for consent you may be charged a administration fee and consent charge. 

Another major issue is when your lease drops below a certain number of years , it becomes more difficult to obtain a mortgage or sell your property . In situations like this you will either need to extend the lease or buy the freehold of your property. 

The reason it has become a major issue is that there are many examples where leaseholders have been charged exorbitant fees for lease extensions and consents. In some extreme cases where leases have dropped below a certain number of years it has become difficult for people to sell their properties. The difficulty being the cost of extending the lease or buying the freehold is beyond their budget thereby ending in a dilemma for the owner. Others have encountered difficulties in selling their properties because of increasing ground rents.

The most extreme case I have encountered is when a owner did not realise his lease was coming to an end and there was the real possibility the property will transfer to the freeholder. In this particular situation the owner had to negotiate almost the market value of the property to keep their home. The alternative being the freeholder could have taken ownership of the property.

One important point to bear in mind is that as a residential leaseholder you have the legal right to buy your freehold interest. Should you choose to do so you should seek advice of a solicitor or a Chartered Surveyor before proceeding.

The Government has now put out a consultation paper , the main tenor of which is that any new properties being built and sold should be on a freehold basis. If there are to be leaseholds the rents should be fairer.

Just for clarification the rules around commercial properties are very different.

In conclusion it is important when you are buying a property to be aware if it is leasehold or freehold. If you are a leaseholder wanting to buy your freehold it is important you take the right professional advice.       

To discuss further please contact Mohammed Mahroof – mahroof@markjenkinson.co.uk – 0114 276 0151

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