When purchasing a property, it is crucial that you know exactly what you are in for, whether this means taking on a home with a restrictive covenant or distinguishing between a ‘freehold’ and ‘leasehold’.
A ‘freeholder’ is whoever owns both the property and the land it stands on, while a ‘leaseholder’ will effectively have the use of the property for an agreed amount of time. The distinction can sometimes be glossed over by estate agents, which can be dangerous for buyers. There has been a great deal of controversy recently regarding developers who sold leasehold properties, only to land buyers with spiralling ground rents and unfair fees.However, that is not to say that leaseholders are without rights. With the help of a conveyancer, a leaseholder can negotiate for a lease extension, or even to purchase a freehold outright. This can be a complicated process, so it is important that you know exactly what your position is, what your rights are and how much it will cost to make alterations to your lease before moving forward.
If you are the ‘freeholder’ of a property, you own both the building and the land outright. As such, you will not need to pay ground rent and you will not be charged for maintenance (except for the property’s roof and exterior walls). However, the freeholder for a block of flats will be responsible for cleaning and maintaining common areas, such as the staircase and entrance hall.
There is little point to owning a standalone house without being the freeholder, though some new build properties are still sold in this way. Certain developers have been highly criticised for this, as they have forced their buyers to pay spiralling ground rents while making it difficult for them to sell their homes. When purchasing a property, be sure to have your conveyancer let you know whether you will become the freeholder; if they fail to inform you correctly, you may be able to take them to court.
When you are a leaseholder, you are renting the lease on your property from the real owner, the freeholder. You will have use of the property for a set number of time, usually several decades.
As a leaseholder you will need to pay annual ground rent to the freeholder, as well as a share of the building’s insurance, maintenance fees and annual service charges. Knowing what the situation is with your ground rent is particularly important, so ask your conveyancer to specify the situation before taking on a lease.
Because leaseholders do not fully own their properties, they cannot make any significant structural alterations without first getting permission from the freeholder. They can also be subject to additional restrictions, such as not having pets. It is important to follow these terms carefully, as failing to do so could render your lease forfeit.
While a leaseholder is not responsible for managing the common areas in their building by default, they can ask for the ‘right to manage’ in order to do so.
Once a lease runs out, the property in question will revert to the freeholder. This can make it difficult to sell a property with only a short lease remaining. A lease of less than 80 years can seriously undervalue a property, even if it is in an affluent area, though a buyer can usually arrange for a lease extension with the freeholder before purchasing if necessary.
While leaseholders are certainly in a worse position than freeholders, they are not completely powerless. The government has recently been working to improve leaseholder rights regarding such topics as extending leases or buying freeholders. Exactly what your rights are will depend on how long you have held the lease, as well as whether you live in a house or flat.
If you live in a leasehold property, you will have the right to renegotiate the terms of your lease. This can include who manages and pays for maintenance. More importantly, you can ask your freeholder to extend your lease at any time, though the process can be complicated without help from a professional conveyancer.
You can have a lease extended by 90 years on a flat or 50 years on a house. However, the process is not free and you will likely have to pay the other party’s costs. Stamp Duty will also be applicable for costs above £125,000, so be sure to collect quotes for the work before going through with anything.
To start the process, seek lease extension legal advice from a conveyancer. You can also book a leasehold valuation survey to get an idea of the costs, keeping in mind that you do not need to share this information with your landlord/ freeholder. There are free price calculators online, but these only really provide estimates and cannot guarantee accuracy.
Do not be afraid about your freeholder refusing your request. If you have owned your flat (owned, not lived there) for two years or more, you are legally entitled to an extension. If your freeholder tries to refuse, you can take them to a tribunal.
At this point it is worth pointing out the possible ‘informal’ route of extending a lease. This involves simply approaching the freeholder and trying to arrange things without having to hire a professional. Unfortunately, this can leave you quite vulnerable; for example, the freeholder could make alterations to the contract, such as raising the ground rent. It is worth the cost of hiring a conveyancer to know exactly where you stand and what your rights are.
A leaseholder also has the right to purchase the freehold for a house or flat outright in a process known as ‘freehold enfranchisement’. While this is not a simple procedure, going through with it can definitely be worthwhile, especially for houses. Again, if this route is open to you then your first step should be to seek advice from a local conveyancer.