In the UK, property ownership comes in two main forms: leasehold and freehold. Recognising the difference is crucial in selecting the right option for you. With a freehold property, you own both the structure and the land it’s on. For leasehold properties, however, you have the right to use the property for a set time, typically between 99 to 125 years, while the landlord or freeholder maintains actual ownership rights.
The team at Lease Extensions Organisation has put together information to help you understand leasehold ownership. If you’re considering a leasehold, you’ll be known as the lessee or leaseholder, and the property owner as the lessor or freeholder. The contract between you is the lease. Once the lease ends, ownership reverts to the lessor, though leases can sometimes be extended and leaseholds can be freely sold on the market.
In the 2021-2022 period, approximately 4.98 million homes in England were leaseholds, accounting for around 20% of housing. Of these, 70% were flats and the rest houses.
Advantages for First-Time Homebuyers
Leasehold properties offer several advantages, especially for those buying a home for the first time:
Affordable Pricing: Leaseholds tend to cost less than freeholds and might be located in more sought-after areas. They provide a more budget-friendly option with lower costs in taxes, fees, and deposits. As a result, you might even avoid paying stamp duty altogether.
Reduced Maintenance Costs: The freeholder is responsible for common areas such as lobbies and gardens. Leaseholders pay an annual service fee for maintenance, which can help distribute the costs among all residents.
Improved Living Experience: Shared spaces and community amenities included in your lease can make for a more enjoyable environment and a stronger community feel.
Gateway to Property Ownership: A leasehold can be an initial step into the property market, enabling you to eventually transition to a freehold when you’re more financially stable.
Important Factors to Think About
Though the benefits are appealing, consider these points carefully before deciding on a leasehold:
Remaining Lease Term:
The length of the lease is critical, especially if it’s been around for a while, and buying from another leaseholder means you need to check how much time is left. Look for properties with at least 80 years on the lease to avoid problems with lending, property value, or sale potential. You can extend your lease by about 90 years, using a lease extension calculator to estimate the cost.
Service Fees: Understanding the service charge breakdown is important, as the costs for maintenance and insurance will likely come from your pocket. Disagreements with the freeholder over costs and maintenance are possible, so it’s vital to review the lease terms closely before signing.
Lease Restrictions:
Your lease might carry certain limitations, such as rules on pets or subletting, which could be an issue now or in the future and might involve extra costs. Always check the lease for any restrictions that could affect your use of the property.
Seeking Legal Advice
The intricacies of leasehold law can be complex and even trip up seasoned property professionals. First-time buyers should seek advice from specialist leasehold solicitors for clarity on terms and to avoid costly mistakes. With recent legislative changes such as the Leasehold Reform (Ground Rent) Act 2022, which eliminates ground rents for new regulated leases, becoming a leaseholder is more accessible than before, offering a taste of property ownership without all the responsibilities of a freehold.
Note that the information provided here is purely for guidance. Always get independent and professional advice before making property transactions or financial decisions.
