Buying freehold... or so I thought.

Slithery

Sorry, I was getting mixed up with the right to buy the freehold and statuatory extensions.

Sandtree

Holeydel said:
I can live with £8 a year lease but as it's ridiculously low I can't help but think I'm missing something.

With a little structuring this type of thing sits nicely on a long term insurers balance sheet and Solvency II matching adjustments allows them to recognise future income on a present value basis... there were several articles written about this sort of thing (ground rents, equity release mortgages etc) when the sale of £12bn of annuities from the Pru to Rothesay Life went to court for the first time - the articles focused on Rothesay's big exposure to these though in reality Pru has more in absolute terms.

Some have also accused companies of making very optimistic assumptions when it comes to lease forfeiture due to default on paying the ground rent.

princeofpounds

The ground rent is £8 a year because it was set in 1975 when that was a more appreciable sum of money. Also presumably, you do not need to worry about the ground rent escalating because it is defined in the lease, which will tell you straight away if you read it (or ask your solicitor). The fact that the ground rent is so low would suggest it has never escalated and probably never will.

The fact that it is a 999 year lease means that the length of your tenure is as good as freehold. 

And as others have stated you almost certainly will be able to buy the freehold after two years of occupation, if you want it. You may not even have to wait that long because contrary to your expectations I suspect the freeholder would be very happy to sell if it's at a slight premium to the value of the freehold. But there may be no reason to - the freehold itself will cost peanuts (because it's a very long lease with minimal ground rent it's not worth much at all), but the legal costs may mean it's not worth it.

Really the only thing you need to check on is whether there are any special covenants in the lease that impose special conditions. A common one would be something like 'no extensions without written permission of the freeholder'. It is not that likely there will be anything problematic - again ask your solicitor.

So basically - the fact that it is a leasehold is probably not a big deal at all, and it may as well be freehold from a practical perspective. This is not uncommon, particularly in some areas of the country - it's just one of those quirks that arises from how things were done historically. 

Holeydel

princeofpounds said:

The ground rent is £8 a year because it was set in 1975 when that was a more appreciable sum of money. Also presumably, you do not need to worry about the ground rent escalating because it is defined in the lease, which will tell you straight away if you read it (or ask your solicitor). The fact that the ground rent is so low would suggest it has never escalated and probably never will.

The fact that it is a 999 year lease means that the length of your tenure is as good as freehold. 

And as others have stated you almost certainly will be able to buy the freehold after two years of occupation, if you want it. You may not even have to wait that long because contrary to your expectations I suspect the freeholder would be very happy to sell if it's at a slight premium to the value of the freehold. But there may be no reason to - the freehold itself will cost peanuts (because it's a very long lease with minimal ground rent it's not worth much at all), but the legal costs may mean it's not worth it.

Really the only thing you need to check on is whether there are any special covenants in the lease that impose special conditions. A common one would be something like 'no extensions without written permission of the freeholder'. It is not that likely there will be anything problematic - again ask your solicitor.

So basically - the fact that it is a leasehold is probably not a big deal at all, and it may as well be freehold from a practical perspective. This is not uncommon, particularly in some areas of the country - it's just one of those quirks that arises from how things were done historically. 

I appreciate your opinion on this one princeofpounds. As long as there's a fixed ceiling on the ground rent for the foreseeable future and no unusual clauses in the lease agreement I don't see now why I shouldn't go ahead. I'll put forward the input to my solicitor to chase up in the morning and see what comes back. 

Skylon

Maybe the seller is in the process of purchasing the freehold to include in the sale to you?  This happens quite a lot, so might be worth asking your solicitor or even the agent to find out. 

london21

Get it sorted before you exchange.
I personally prefer freehold to 999 years leasehold.

gab3x

Sorry to put a damper on this but here are my few cents:

• If it is a leasehold you will not be the owner of the house or the land that the house sits on, you're a lessee. There is no middle ground here, this is not a formality this is a long term lease contract
• As a lessee you will have a contract (lease) with T&Cs imposed on you as well as obligations of your landlord or the freeholder
• Yes the ground rent might be low, yes the term might be 999 years and service charges non existent but this does not change your status and the fact that you do not legally own that property
• In an absurd but theoretically possible scenario if you fail to pay your dues or follow restrictive covenants the freeholder can kick you out of property and terminate your lease without owing you a penny. However low a chance of this happening, it does happen google it. 
• Freeholder will be needed for big things such as renovations, extensions or sale of property (forget 40 years of staying there, life moves in very unpredictable ways). At best they will rob you blind for this (they can ask whatever charge) and at worst they will not engage and you will be stuck in legal limbo, and/or unable to sell 
• Neighbour disputes will take on a whole other dimension when property isn't yours
• Finally, for all those comments saying - I had many leaseholds before and it was all OK - to this I say not everyone that smokes gets cancer but whose that do they end up with their lives ruined. Why put yourself into such risk even if small???

Chandler85

Have you also considered that the seller might own both the Leasehold and the Freehold and has never merged the titles together?  You solicitor has only been sent half the stuff and has assumed it is Leasehold.

My property is technically Leasehold as there is a Freeholder as well.  However, the Freeholder is also me.

Holeydel

Skylon said:

Maybe the seller is in the process of purchasing the freehold to include in the sale to you?  This happens quite a lot, so might be worth asking your solicitor or even the agent to find out. 

Chandler85 said:

Have you also considered that the seller might own both the Leasehold and the Freehold and has never merged the titles together?  You solicitor has only been sent half the stuff and has assumed it is Leasehold.

My property is technically Leasehold as there is a Freeholder as well.  However, the Freeholder is also me.

Initially I was given the assumption that the land and property deeds would be sold over, but I can confirm this is not the case and the seller and the land owner are 2 seperate entities.

That said, shout out to Sandtree who suggested exploring the possibility of purchasing the freehold. I shot an email to the landlord, an investment company with many holdings, and they said they're willing to sell between £4-6k and for my solicitors to get in touch. Yes the additional fee sucks and there's no saying whether it's worth it given the current rate of £8 year ground rent. I can't predict the future under a lease agreement so the extra cost will at least give me peace of mind knowing I will own everything. I think this will be the route I take. Amazing learning experience this! Expensive too!

Holeydel

gab3x said:

Sorry to put a damper on this but here are my few cents:

• If it is a leasehold you will not be the owner of the house or the land that the house sits on, you're a lessee. There is no middle ground here, this is not a formality this is a long term lease contract
• As a lessee you will have a contract (lease) with T&Cs imposed on you as well as obligations of your landlord or the freeholder
• Yes the ground rent might be low, yes the term might be 999 years and service charges non existent but this does not change your status and the fact that you do not legally own that property
• In an absurd but theoretically possible scenario if you fail to pay your dues or follow restrictive covenants the freeholder can kick you out of property and terminate your lease without owing you a penny. However low a chance of this happening, it does happen google it. 
• Freeholder will be needed for big things such as renovations, extensions or sale of property (forget 40 years of staying there, life moves in very unpredictable ways). At best they will rob you blind for this (they can ask whatever charge) and at worst they will not engage and you will be stuck in legal limbo, and/or unable to sell 
• Neighbour disputes will take on a whole other dimension when property isn't yours
• Finally, for all those comments saying - I had many leaseholds before and it was all OK - to this I say not everyone that smokes gets cancer but whose that do they end up with their lives ruined. Why put yourself into such risk even if small???

Thank you for all your input Gab3x, don't apologise for stating your opinion! I appreciate all points of view, whether they're deemed positive or negative. Fortunately it appears I'm in a position to purchase the freehold (see post above) which is how I'll proceed given the many reasons you pretty much listed.