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Understanding property - freehold and leasehold
| Author: Craig Bees | Published: 22nd August 2018 09:37 |
Understanding property - freehold and leasehold
This week I’m looking at an age-old property conundrum – the difference between freehold and leasehold, the two most common forms of property ownership in the UK. Both are common terms but do you know what they mean in practice?
Leasehold
With leasehold you are buying for a fixed period, often 99 years and up to 999 years if the home is new, though leases can be much shorter. But you do not own the land the property is built on, the rights to which stay with the freeholder. Flats are almost always leasehold and often come with charges to the freeholder or their agents for service, maintenance or ground rent. According to the Land Registry, in the 10 years to 2017 the proportion of leasehold properties being sold almost doubled from 22% to 43% of transactions.
Remember that seemingly modest ground rents can rise substantially over a period of years so it is a good idea to find out through your solicitor what the rental projections are on any leasehold purchase. Campaigners have suggested capping ground rents at a tiny percentage of the property’s value to avoid unexpected rises.
Drawbacks
Because of the set amount of years of ownership, leasehold properties are technically a dwindling asset. As the lease period diminishes, particularly below 80 years, the property may become harder to sell or obtain a further mortgage on. This raises the question of whether a leaseholder should extend their lease, which can cost anything between about £8,000, including fees, to tens of thousands of pounds. However, it adds value to the property.
Consumer groups have advocated extending leases but warn that you must take into account the costs incurred by legal advice, the lease extension valuation report by a surveyor, your freeholder’s reasonable legal and own valuation costs (required by law) and Land Registry fees.
Freehold
Freehold is considered a more attractive option because it means you own both your property and the land on which it stands without any time limit or maintenance charges. Most houses are freehold although there has been a controversial trend of selling new-build homes on a leasehold or part-freehold basis.
Leaseholders have the option to buy the freehold. Some developers of new-build houses have been reported as giving freeholds to buyers for nothing so if you are in a leasehold or part leasehold house, it is worth asking what terms are available.
Obtaining the freehold on a flat is more complicated, but it may make financial sense over the long term if you are saddled with high charges. Essentially you would need to join forces with other leaseholders in your block to approach the landlord with a view to each buying a share of the freehold. This would involve the formation of a company between the tenants that would hold ownership in what is known as commonhold, with all flats in effect being leased from and managed by the company.
If you have any queries on this subject call our office on (10327) 359164 or e-mail me at craigbees@bartramandco.co.uk
Towcester Youth Coffee House: tickets going fast for this great fund-raiser at the Dilraj restaurant on Tuesday October 9 2018.
Monthly draw: your chance to win a case of Italian wines (red/whites/mixed) or one month’s membership to Whittlebury Hall Leisure Club.
How To Enter: Every valuation and instruction for sale or rental between now and next Wednesday (August 29 2018) will be entered into the draw, the winners being notified by e-mail.
If you’re thinking of selling or letting your property and want to win one of these great prizes on offer call (01327) 359164 and speak to our sales or lettings team.
Until next time.
Craig Bees, MD Bartram & Co
E-mail me at craigbees@bartramandco.co.uk
Visit our website www.bartramandco.co.uk and follow us on Twitter@bartramandcotow
Tel: (01327) 359164
Fax: (01327) 359166
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