Buying Leasehold

MrPayless

Hi

Stupid question I know but can someone tell me what the pitfalls are of buying a flat or house that is not freehold but leasehold?

If I was to buy a property that was Leasehold for x years what happens after that time? Will I always on the property?

Cheers!

trafalgar_2

Leaseholders actually buy the lease to their home; not the property itself.


The property will only be yours if you buy the freehold

http://england.shelter.org.uk/advice/advice-444.cfm#wipTest-917-2

deemy2004

They way I remember it, is that leashold you lease the land the property is built upon, so own the property but not the land.

dippy

Apparently, if you've lived a minimum of years in the leaseholded property before the lease runs out, the owner of the freehold has to renew the lease for a nominal sum.

dougk_2

The most important thing is the length of the lease - The longer the better - My partners property has over 950 years remaining so much longer than the house is ever going to survive for , therefore the differnce is minor in her case....however with leashold there are normally service charges to pay for... in her case just £15 pa.

westernpromise

With a leasehold property there is a lessor who owns the freehold and 1 or more lessees (aka leaseholders) who buy leaseholds, i.e. the right to use the property for x years. They also have to pay ground rent, which is usually a smallish sum of around £50 to £100 a year (obviously this can vary).

Leasehold is a very common arrangement where you have a building split into a number of dwellings - eg a converted house or purpose-built block. This is needed because such buildings often have common parts, eg gardens, hallways, foundations, etc. - whose maintenance costs should be borne by all occupants. A freehold-plus-leasehold setup means the freehold owner repairs the roof if it leaks and then distributes the bill among the leaseholders.

Quite often the freehold actually belongs to a company which is jointly owned by the lessees.

The risk in buying a leasehold is basically twofold. First, unless the lessees own the freehold themselves, there is often little you can do to avoid being ripped off by an unscrupulous management company, who may levy extortionate service charges for unnecessary or even non-existent work, and kick some of the proceeds back to the freeholder.

The best way to assess this risk is to ask for evidence from the seller of what the service charges have been. If they look high or are poorly documented, be wary.

The other risk is of buying somewhere whose lease is looking a bit short. The issue here is that the shorter the lease, the harder the place is to sell, and if it's hard to sell, mortgage lenders won't lend against it (in case you default and they end up having to sell it).

In practice, this means that it can be tricky to get a mortgage on a place with less than about 75 years left on the lease. Not always, but sometimes - some lenders require there to be more than 50 years on the lease throughout the life of the mortgage, so a 74-year lease with a 25-mortgage can present problems.

The good news is that lessees have the right to buy the freehold, subject to certain conditions being met. For instance, you have to have lived there a certain time, a majority of the lessees must also want to buy, etc. If all this applies, then you get to buy at a price which is effectively the net present value of all the ground rent the lessor would have received. The formula for doing this is set down in law and the freeholder cannot muck about with it.

For house conversions, about £2 to £3k is about the norm for this, plus you have to pay the freeholder's reasonable costs.

The exception to the above is if the lease has less than 80 years to run. If that is so, then the freeholder can add 'marriage value', which is a percentage of the value of the properties involved. There is no hard and fast rule on how much this should be. If your disagree with your freeholder's estimate of it all you can do is go to a valuation tribunal, which can end up costing more than the sum you are arguing about. Tribunals' decisions aren't binding on other tribunals either, so precedent is no guide.

By way of a rough idea, we bought a freehold recently just on the 80-year deadline and it was £1,500 without marriage value. The freeholder wanted £16,000 if we missed the deadline by even a day.

Of course once you own the freehold you can appoint your own management company or do everything for yourselves. Much better place to be.

Leasehold is a necessary evil but it definitely isn't all bad, in in major cities where probably most houses are now leasehold flats, it is very much the norm.