Buying a house: leasehold vs freehold Buying a leasehold property

Leasehold

You may find it hard to get a mortgage if there's less than 70 years on the lease

As a leaseholder, you own the property, but not the land it stands on. 

Flats are usually owned on a leasehold basis. Houses can be leasehold too, but they tend not to be unless purchased through a shared ownership scheme. Our guide on shared ownership schemes explains whether this is a useful option for you

Buying a leasehold property means you’ll own it for a fixed period of time. A legal agreement (a 'lease') will be in place with the landlord (also known as the ‘freeholder’).

Leasehold properties: How long does the lease last?

The lease will determine how many years you can live in the property. At the end of the lease the ownership of the property will theoretically revert to the landlord.

You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy.

Our guide on boosting your mortgage chances may help those tempted by a property with a short lease 

Leaseholder rights and responsibilities

Managing agents are the companies appointed by freeholders (the owners of the land that a leasehold property is on) to look after the communal areas around blocks of flats and to collect ground rents, services charges and buildings insurance premiums.

Leases will vary but you'll usually need to get permission to make alterations to your property. Service charges are the money you'll pay towards maintaining the property and the managing agent will arrange the buildings insurance if you're in a block and charge you a portion of the total premiums.

As a lessee, the landlord should consult you if you're expected to pay more than £250 for building work or £100 a year for services lasting for more than 12 months (a ‘Section 20 consultation’).

You can appeal about the reasonableness of a charge, the standard of work it relates to and your ‘liability’ (if you should be paying it at all) to the Leasehold Valuation Tribunal (LVT).

Go further: Buying a freehold property - read this guide to find out whether freehold properties are a more suitable option for you 

Leasehold 2

You need agreement of 50% of tenants for right-to-manage

Leasehold property: opting for right to manage

One option open to leaseholders who want more control is the right to exercise 'right to manage' (RTM); removing the managing agent and handing the management contract to a new company, or even setting up their own company to take management into their own hands.

Leaseholders can set up the RTM company without the landlord's consent and there is no requirement to prove mismanagement by the landlord. They do, however, have to secure the participation of at least 50% of qualifying tenants in a block of flats and only up to 25% of the building can be commercial.

Leasehold property: is right to manage a good idea?

Opting for RTM might seem like a good idea to allow owners to make their own decisions and control their affairs, but the switch does mean a lot of hard work and greater responsibility for leaseholders.

They become responsible for decision-making around budgets, reserve funds, standards of management, repairs and major works. It is generally accepted that if a block contains more than six flats it’s still a good idea to employ a professional managing agent.

Leasehold property: extending the lease

The one thing that most parties agree on is that there's not enough information for home buyers considering the purchase of a leasehold property. There's no requirement for estate agents to tell buyers how long is left on the lease and first-time buyers may be unaware how important this can be.

The upshot is that homeowners might be left with a 'wasting asset' if the length of the lease falls below a certain level. It is generally accepted that the property will start to reduce in value, and the owner may find it hard to sell a flat with a lease of less than 80 years. Flat owners with a lease of 80 to 85 years should consider acting to extend it.

To extend a lease, leaseholders can use a Section 42 notice. The leaseholder must have owned the flat for two years, but once the notice has been successfully lodged they have the right to an extension of 90 years to the current term.

You can also negotiate informally with the freeholder to extend the lease, with recourse to the Leasehold Valuation Tribunal if you reach an impasse. The Association of Leasehold Enfranchisement Practitioners has members who are specialists in helping owners of flats extend their leases.

Leasehold disputes

The key weapon for leaseholders who find themselves in a dispute with their managing agent or landlord over service charges is the Leasehold Valuation Tribunal. If you feel your service charges are unreasonable, your buildings insurance is overpriced or the quality of services provided is poor, the LVT can arbitrate if you can’t reach an agreement through negotiation.

Leaseholders can also go to the LVT if they want an extension to their lease or want to buy the freehold but aren’t able to come to an agreement with the existing freeholder on a price.

The decision of the LVT is binding and is provided in writing after the hearing. Some applications to the LVT carry a fee of up to £500, depending on the type of dispute.

Need mortgage advice?

We believe you should seek independent mortgage advice before taking out a mortgage. The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every available lender. You can also find an independent mortgage adviser using the Unbiased website.

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