What is leasehold?

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What is leasehold?

In the UK, properties can be either leasehold or freehold. Leasehold means you have the right to live on the land for a set number of years, but you don’t actually own it. When your lease runs out, you need to pay more to renew it.

It all goes back to those good old feudal days, when only lords owned all the land and the serfs paid them to live on the land and look after it. And it still works in pretty much the same way (except for the lord bit).

The freeholder could be one person, or several. For example, let’s say you’ve got a house that’s been converted into four flats. The freeholder could sell off each flat, with its own lease. Or they could sell each flat with a share of the freehold.

As a leaseholder, you usually have to pay things like ground rent, service charges, or other charges to the freeholder to cover the costs of keeping the building, grounds and shared areas in a decent state.

A long lease tends to be around 100 to 120 years. Once you get below 70, it starts getting harder to get a mortgage.

The upsides

Leasehold properties are often cheaper. And they’re usually flats or apartments (where you have several properties on one piece of land).

Buying a property with a short lease is often much cheaper, on paper. But of course, you have to allow for the cost (and hassle) of renewing the lease. Then again, if you’re savvy and you’ve done your research, you can bag yourself a bargain.

And if you like the idea of living in a block with shared areas that someone else looks after – like a garden, gym, swimming pool or so on – then it’s likely to be leasehold.

The downsides

Being a leaseholder often means having to cough up for extra charges, like ground rent and service charges. You might also have to pay into a ‘reserve’ or ‘sinking’ fund for any work that needs doing, or repairs to shared areas like the roof. Knowing these costs in advance will help you weigh up whether or not a property is really as affordable as it seems.

Also, renewing a lease can be pricey. You’ll need to negotiate a price with the freeholder. Sometimes, it can cost up to 20% of the property’s value. There’s been some talk of lowering the cost of renewing a lease, but nothing’s come of it so far.

And remember, being the new owner doesn’t mean you get a fresh lease. You just take over however many years are left on the last owner’s lease.

Leaseholds on new-builds

If you’re buying a new-build, you need to be clear whether you’re buying it leasehold or freehold – and if it’s leasehold, what the charges are. There have been horror stories over the years about people who buy new-builds only to be stung by eye-watering ground rents and service charges. So be sure to investigate.

Also, developers can sell on the freehold to another company whenever they like – and that company can decide to put the charges up to whatever they like. So be sure to check whether the developer can sell the freehold on.

Leasehold with share of freehold (commonhold)

In some cases, you may buy a property with a share of the freehold. This means you still have a lease, but own part of the land that the building is on, too. It could be that all the leaseholders own an equal share of the freehold (say, one house, split into four flats, with four equal shares). Whatever, you’ll need to agree with the other leaseholders on paying for repairs, maintenance and so on.

Things to think about

If you’re buying a leasehold property, there are a few extra things to weigh up. How long is the lease? How much will it cost to renew – and how easy will that be? What are the ground rents and service charges? Are the shared areas in good nick, or is major work on the horizon? And if it’s a new-build, could the developer sell on the freehold?

In a nutshell

If you’re buying a property in the UK, it could be leasehold or freehold (or both). Leasehold means you have the right to live on the land for a set number of years. Freehold means you own the land (or a share of it yourself). Houses with short leases can be cheaper, but harder to get a mortgage on and harder to sell. Leaseholders usually have to pay ground rent and service charges, which can be steep.

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Can we help?

We want to open up the law to everyone. Explaining it clearly is part of that, but we also find ways to make everyday legal services cheaper and easier.

If you’d like to set up a business or register a limited company, we can help you. In fact, we’ve managed to make our cheapest company formations cost less than going direct to Companies House. We can also help with accounting, payroll and tax services or a central London address – there’s a month’s free trial, and you can cancel any time. If that all sounds a bit daunting, don’t worry. Using a formation agent (like us) to do the legwork could actually save you money. Visit our company formation webpage, or call us on 0345 122 8103 if you need advice.

Can we help?

We want to open up the law to everyone. Explaining it clearly is part of that, but we also find ways to make everyday legal services easier and more affordable.

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Can we help?

We want to open up the law to everyone. Explaining it clearly is part of that, but we also find ways to make everyday legal services cheaper and easier.

If you’re buying or selling a property, we can help you. In fact, we have everything you need to get the conveyancing process done and dusted online. Have a look at our conveyancing webpage, or call us on 0345 122 8103 if you need advice.

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