Buying a house: leasehold vs freehold Buying a leasehold property

Leasehold

Once a property's lease runs out, ownership reverts back to the freeholder

What does leasehold mean? What's the difference between leasehold and freehold? How long should be left on a lease when buying a leasehold property? We explain everything you need to know.

As a leaseholder, you own the property, but not the land it stands on. The land remains owned by the landlord (also known as the 'freeholder'). Ownership of the property will also revert back to them once the lease runs out. 

Leaseholders have to get permission from the freeholder to make alterations to the property and will often have to pay an annual fee to a managing agent.

This is different from owning a freehold property, when buyers are the sole owners of the building and the land it stands on.  

Flats are most commonly owned on a leasehold basis, while houses are normally sold as freehold properties. 

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How long should be left on a property lease?

A lease is a legal document which determines how many years the property's owner can live in the building. When buying a leasehold property, the longer the lease has remaining, the better.

Most leasehold properties are sold with leases which still have decades left to run. However, once a lease has less than 80 years remaining, it becomes more expensive to renew it and harder for potential buyers to be granted a mortgage.

To avoid having to shell out thousands on a renewal, buyers should look for a property with a lease that's unlikely to drop below the 80-year mark while they live there. 

Find out more: How to find a property - a property expert shares her tips in this video guide

Extending a lease    

If you want to buy a leasehold property but it doesn't have long left on the lease, consider asking the vendor to extend the lease before the deal is completed. This could save you thousands of pounds.

If you're a leaseholder yourself and have been living in the property for more than two years, you may have the right to extend your lease using a Section 42 notice. Once the notice has been successfully lodged, you have the right to an extension of 90 years to the current term if you're in a flat. 

You can also negotiate informally with the freeholder to extend the lease, with recourse to the Leasehold Valuation Tribunal (LVT) in the case of a disagreement. The Association of Leasehold Enfranchisement Practitioners has members who are specialists in helping owners of flats extend their leases.

The Leasehold Advisory Service has an online calculator which will help you work out how much extending your lease is likely to cost.

Row of terraced houses and flats with a hedge and flowers outside

You can manage the property yourself if at least 50% of the tenants are in agreement

Leasehold property management

Most freeholders will appoint managing agents to look after communal areas of leasehold properties. These agents will charge leaseholders an annual fee to cover ground rents, maintenance service charges and buildings insurance premiums.

Leaseholders can opt to arrange these services themselves under a scheme called 'Right to Manage' (RTM), providing more than half of the building's tenants agree to participate. However, it's generally recommended for professional managing agents to be left in charge of leasehold properties housing more than six people. 

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.

First-time buyers video: Lydia and Amanda's story

First-time buyers Lydia and Amanda speak about the problems which can arise when trying to buy a property with a short lease and the delays it ended up causing in the search for their first home. 

 

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