Just found out house is leasehold, not freehold.

N4Nikeir

So, I'm a first-time buyer, and so I am a little clueless when it comes to the practicalities and expectations, even after having done research. I thought I'd gotten a super good deal on a house (105k for a 3 bedroom semi-detached with drive and garden, just outside a really cute and sort-after village area, with a 15 year mortgage.) I was excited and ready, and then the other day, my solicitor got a hold of the property's title, and well, the title says it all.

Rather than a freehold, the house is a 999 year sublease (less than 10 days) with a peppercorn ground rent. This came as a shock to me, and when I approached the estate agent responsible for selling the house, even she seemed surprised (though she also said the length of the lease should not present a problem.) My solicitor has not been all that useful in telling me what all the terms mean, either. When I asked him what a peppercorn ground rent was, he went on some confusing spiel about literal peppercorns that just left me more puzzled (a quick google revealed that it was a very small or nominal ground rent.) Because he has been so confusing on that front, I have not asked him what he means by a "sub-lease" as opposed to a lease, or what is meant by "less than 10 days." Googling has been not been helpful for these terms.

My solicitor, however, has been adamant that there is no chance of escalating ground rent, as this property is not a new-build, and so is not subject to an escalating rent review. He also seems confident that this will not affect the value of the property (which I find a bit unbelievable.) Thus, he is advising me to continue with the purchase, and my lender is also not concerned about the tenure of the property. I've spoken to my father about this, and he also seems confident about the purchase, particularly as my solicitor has said I should still continue. However, I'd really like some outside advice. I know I've done well with the purchase price for my first property, but this has made me consider it may not be such a good deal. Apparently, leasehold houses with these terms are very typical in Manchester and Liverpool, but still.....

Any advice offered would be really, really appreciated!

Ozzuk

The fact it is leasehold should have been factored into the value - assuming the estate agent knew. Otherwise its value is of course lower than an equivalent freehold property.

Its not the end of the world, assuming it was valued correctly, but you need to know what restrictions if any are in place, and if those impact with any plans you may have (extensions for instance). You could also enquire about purchasing the lease post purchase.

G_M

As you've discovered, a peppercorn rent is a nominal rent. Back in the day, a peppercorn was literally paid each year (because a lease requires some payment). I imagine yours is £1, or £10 or something?

If the 999 year lease was granted 10 days ago, then the outstanding length of the lease is now 998 years and 357 days.

A sub lease means that the owner of the initial lease has created a 2nd lease beneath it.

Imagine a big landlowner who splits up his land into 4 farms, and leases each one out to a separate farmer. One of those farmers finds his farm is too big to manage but finds a local resdent who wants a field to keep his horse in, so the farmer grants a sublease to the horse-owner.

The horse owner has a perfectly valid and secure lease. The fact that it's a sub-lease makes no difference to him.

Comparng a leasehold house to a freehold, the potential issues are

* length of lease - no issue here
* annual payments (ground rent, service charge) - no issue here
* terms of the lease - there may be restrictions on what you can do eg build an extension. Read the lease!

davidmcn

If it's an ultra-long lease with no significant rent and no onerous restrictions in the lease, then for all practical purposes it's equivalent to freehold.

PhilE

davidmcn wrote: »

If it's an ultra-long lease with no significant rent and no onerous restrictions in the lease, then for all practical purposes it's equivalent to freehold.

Its not freehold though, so he doesn't own it as such.

OP, if you don't want leasehold don't buy it.

davidmcn

PhilE wrote: »

Its not freehold though, so he doesn't own it as such.

So what do you think the downsides actually are, once you've eliminated the usual concerns of a short term, significant / increasing rent, restrictions on use / assignment etc? Many leaseholds are utterly benign, and will be valued as if they were freehold.

Smodlet

Are you certain the lease has 999 years minus 10 days to run, OP? I would want to see incontrovertible proof of that in writing and obtain a price for purchasing the freehold just to have the option.

I would also sack the solicitor for failing in their duty to safeguard your interests. Being unable/unwilling to communicate what a peppercorn rent is when this falls within the realm of common knowledge is, imho, unacceptable.

N4Nikeir

OP here. The property has had a loft extension in the past, so I don't think there are serious issues with adding extras to the property. Looking over the lease now. Got it literally just after I posted, so going through it with an eye for anything odd. So far, I am "to pay the company 1 peppercorn, if demanded, on the 1st January every year." Interesting idea behind the idea of peppercorn rents....

Decided to be cheeky and push to lower my offer, as I'm not happy about the way I had to find out it was leasehold.

AdrianC

N4Nikeir wrote: »

...and when I approached the estate agent responsible for selling the house, even she seemed surprised

The EA only goes by what their customer (the vendor) has told them. Verifying the vendor's information is your solicitor's job, and they're the only one that's working on YOUR side.

(though she also said the length of the lease should not present a problem.)

That's right.

I have not asked him what he means by a "sub-lease" as opposed to a lease, or what is meant by "less than 10 days."

The freeholder owns the ground.
They have assigned a lease, presumably to a wider area than just your plot, to the holder of the head lease.
They have assigned a sub-lease, for just your individual plot, to you.

10 days would most likely mean that the lease has 998 years, 11 months, 21 days until expiry...

It may not be a new build, but it certainly looks as if the lease has just been renewed.

My solicitor, however, has been adamant that there is no chance of escalating ground rent, as this property is not a new-build, and so is not subject to an escalating rent review.

A peppercorn rent is a peppercorn rent. Peppercorns themselves may be subject to pricing variations, but you can easily and cheaply invest in a long-range hedge against them.

He also seems confident that this will not affect the value of the property (which I find a bit unbelievable.)

Why?

Thus, he is advising me to continue with the purchase, and my lender is also not concerned about the tenure of the property. I've spoken to my father about this, and he also seems confident about the purchase, particularly as my solicitor has said I should still continue. However, I'd really like some outside advice.

You have three people who you trust, all with strong interests in giving you the correct information, saying one thing - and you are asking a bunch of total strangers who you don't know from Adam to gainsay them?

eddddy

You could probably buy the freehold (subject to some qualifying criteria) - in most cases, the law gives you the right to do so after 2 years (or sooner, if the seller cooperates).

With a 999 year lease and peppercorn ground rent, the freehold should only cost a few hundred - but the legal fees might reach a couple of thousand. (Maybe adjust your offer to reflect this.)

You could find out if other owners nearby have bought their freehold, and ask your solicitor whether your property would qualify for 'statutory enfranchisement'.

See:
https://www.lease-advice.org/faq/i-own-a-leasehold-house-how-do-i-buy-the-freehold/
https://www.lease-advice.org/advice-guide/houses-qualification-valuation/

eddddy

N4Nikeir wrote: »

OP here. The property has had a loft extension in the past, so I don't think there are serious issues with adding extras to the property.

Well... you (or more accurately your solicitor) should really check that the leaseholder received consent from the freeholder for this.

However, this might open a huge can of worms...

This is likely to trigger questions about building regs. Many freeholders will only give consent for alterations that meet building regs. Very many people do loft conversions that don't meet building regs.


FWIW, out of courtesy, I might tell the EA/vendor in advance that I intended to make pre-contract enquiries about freeholder consent and building regs for the loft conversion - as this could cause big problems for the current leaseholder with the freeholder.