Buying a Residential Leasehold Property - FAQs

If you’re considering the purchase of a leasehold property as your new home, there are some additional considerations to take into account, which are not applicable when you buy a freehold home. We have compiled some frequently asked questions about buying leasehold properties to help you find out more about the differences and processes involved.

What is the difference between a freehold and a leasehold property?

If you own the freehold, it means that you own the building and land that it stands on outright. Your name is on the land registry as the owner of the ‘title absolute’.

Leasehold means that instead of owning the building and land outright, you instead own the right to use the home/land for the period of time dictated by the length of the lease. Leases can run for anything up to 999 years and the terms of the lease will dictate any ground rent,  service charges and restrictions on what the leaseholder can do in or with the property. At the end of the lease, if it is allowed to run down to zero years, the property will return to the freeholder.

What kind of properties are leasehold?

Most leasehold properties are flats or apartments, where the freeholder remains responsible for the upkeep of the building’s structure and any communal areas.

When it comes to leasehold houses, which are most common in cities in Northern England, and which are often formerly council houses, bought by their tenants under the ‘Right to Buy’ scheme, and the council remains the freeholder.

Some new build houses are also leasehold, with the developer usually retaining the freehold. However, freeholds can be sold on to third parties in the future, and the leases on these types of properties can contain clauses that could put the leaseholder at a disadvantage. The leases of new leasehold houses should always be checked out thoroughly by expert conveyancers before Purchase.

How long should a lease be if I want to buy a leasehold property?

Leases that have less than 80 years left to run can be more complicated as some mortgage providers will not lend on leasehold properties with, what they consider as having, a short lease. Homes with shorter leases will usually be cheaper, as there is a cost implication in extending the lease for the new owner.

Most leasehold properties start off with a lease of 99 years, others start of with a lease of 125 years, and some start of with  as 999 years to.

The length of the lease remaining is not the only consideration for potential buyers of a leasehold property though. The terms of the lease and any rent or service charges payable also need to be factored in to a decision.

Can I buy the freehold if I purchase a leasehold property?

Once a leaseholder has owned the lease and lived in the property for at least two years, they may be able to apply to the freeholder to purchase the freehold.

For flats, all of the leaseholders for all of the flats within the building can club together to buy the freehold to the entire building, so that each leaseholder ends up with share of the freehold legally. This means that they are then each partly liable for the upkeep of the building and any grounds.

Instead of purchasing the freehold, many leasehold flat owners instead choose to apply for the ‘right to manage’ their building with the other leaseholders. This gives the people that live there the opportunity to decide what maintenance or repair work to do and who to contract for the work. Previously, the freeholder would make these decisions and leaseholders could be landed with a large bill for work carried out by costly contractors with leaseholders having no say in the matter.

For leasehold houses, the process of applying to buy the freehold may be simpler as there are usually no other leaseholders with which you need to jointly apply, but the freeholder can set their own price for the purchase. Negotiation on the purchase price may well be possible. Freeholders wanting to sell the freehold to a property are usually required to offer it to the leaseholder before they are able to sell it to a third party.

Do lenders offer mortgages on leasehold properties?

Most mortgage lenders will offer to lend on leasehold properties with a substantial number of years remaining on the lease, as long as the other usual property requirements are met e.g. standard construction, structural integrity etc.

Properties with a shorter lease remaining, under around 70 years, may find it more difficult to secure a mortgage on the home. Leasehold properties with certain clauses or terms, such as a doubling of ground rent at set intervals, may also be difficult to borrow against, as resale is more difficult.

Can I extend a short lease on a leasehold property I want to buy?

In the same way that leaseholders can apply to buy the freehold after living in the property for two years, after the same period of time they have a right to instead apply to the freeholder to extend the lease. The costs for this can vary, and will depend on the years remaining on the current lease, the number of years’ extension being requested and the price can be set by the freeholder, to some extent. It’s usual to apply to extend the lease by 90 years (on top of the term already remaining) and extinguish the ground rent.

The cost of extending your lease can often be negotiated with the freeholder. If agreementcannot be reached you will to follow a statutory procedure to determine the same, which can be expensive.

It’s recommended to seek expert legal advice when it comes to applying to extend a lease on a property as the process can be complex and specifics can vary, depending on the terms of the individual lease.

How do I know if there are restrictive covenants or worrying terms of the lease before I buy a leasehold property?

Depending on when the lease for the property you wish to buy was drawn up, you may find that there are restrictions included in the terms. This could be anything from restricting potential work on the property or extensions, to restrictions on the leaseholder owning pets.

Some leases also contain clauses about increases in the ground rent or service charges at various times e.g. ground rent increases at set periods.

You can ask to see the lease before committing to buy, but an experienced solicitor offering conveyancing services should be best-placed to find any terms, clauses or covenants that are a cause for concern.

Should I buy a leasehold property with an absentee freeholder?

Many mortgage lenders will not offer a mortgage on a leasehold property with an absentee freeholder. There are legal risks and potential problems if the freeholder cannot be located or contacted, including issues with potential future lease extensions and the terms of the lease having perhaps been breached by previous leaseholders, which can cause considerable issues for a new leaseholder.

Does it matter if the freeholder of a leasehold property is a local council?

Many properties that were sold originally under the ‘Right to Buy’ scheme (council houses or flats that were bought by their secure tenants) remain leasehold homes, with the council owning the freehold. Some properties that belonged to the council even before ‘Right to Buy’ began in 1980 may be leasehold, with the local council as the freeholder.

From the point of view of lenders, having a council as the freeholder is often considered lower risk than another third party holding that status, as the council is not likely to become an absentee freeholder, and as a public body, are accountable in a way that other freeholders may not be.

Are leasehold properties harder to sell?

Leasehold properties are not necessarily any easier or harder to sell than freehold homes. If the lease still has 90+ years of term remaining, there are unlikely to be any major issues, unless there is an absentee freeholder.

With flats, it is common for them to be leasehold and, depending on the local housing market in your area at the time you want to sell, it should make little or no difference to the saleability of the property.

Leasehold houses are less common, although prevalent in some areas of the UK, and the individual lease terms and clauses will play a big part in how easy or difficult the property is to sell on. For those with a very long lease, with several hundred years remaining and no unusual terms, conditions or restrictions, there are usually no issues when it comes to selling. However, for new-build houses that are leasehold and have potentially troublesome clauses, such as regular ground rent increases, or a freehold that the developer has sold on to a third party, selling can be a more complex issue.

Buying (or selling) a leasehold property can be complex as there are more factors to consider than with a conventional freehold purchases or sale. However, most leasehold purchases or sales can be successfully navigated when you use an experienced legal and conveyancing firm that are experts in this field. Contact Spratt Endicott for advice on your potential leasehold purchase today.

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