What is a leasehold property?

In England, there are two types of interest in property – freehold and leasehold. Owning a freehold interest is relatively straightforward; this means that you own the land outright whereas a leasehold interest is a little more complicated. If you hold a leasehold interest in land, you own the land subject to a lease. This means that at the end of the lease terms, be it 10 years or 999 years, the land reverts back to the freehold owner.

It is the leasehold interest which holds the value of the land, however as the term of the lease begins to decrease, so can the land’s value.

What sort of property is leasehold?

Any property can be leasehold, however it is most commonly found in modern apartments or flats and older properties, often built around the turn of the 20th century.

Will I have to pay rent?

Throughout the term of a lease, the leaseholder will have to pay rent to the freeholder. This can vary from being a few pounds a year to upwards of £100 per annum. If the ground rent is not paid when demanded, the freeholder can deem the lease to have been forfeited.

How long should my lease be?

Ideally, you want a lease for as long as possible however newer leasehold interests are often only for 125 years. Older leaseholds usually have a term of around 999 years starting from the date they were created.

The reason that a longer lease term is desirable is because once a lease term drops below around 60-70 years, many lenders are not willing to offer a mortgage on such a short leasehold. This then naturally impacts upon the saleability and the value of the property. In such circumstances, the freeholder may offer the leaseholder a lease extension of a number of years but this will likely come at a price.

What will my lease stop me doing?

Each lease is different and many will have restrictive covenants preventing the leaseholder from doing certain things in their home. In older leases from the turn of the 19th century, this will often include restrictions on keeping livestock or from turning your home into a place of business or trade. More modern leases often have restrictions on drying washing outside or carrying out significant alterations without the consent of the freeholder.

If, for instance, you did want to operate a business from your home or carry out structural works to your home and your lease prohibited it, you would need to obtain consent to the changes from your freeholder. Again, this would likely come at a cost.

What should I do when I buy a leasehold property?

The lease will have certain requirements of any purchaser of a leasehold interest. At the least, the freeholder will need to be notified of the change of owner. They may also have to pay a notice fee to the freeholder for their administration costs. Some leases may also require that the new owner enters into a Deed of Covenant with the freeholder where they agree to comply with the terms of the lease.

What happens if the freeholder is unknown?

This is frequently a problem with older leaseholds. The freeholds are often unregistered with the Land Registry and the ground rents are not collected. This may then cause you an issue when you come to sell your home.

In such circumstances, your landlord is classed as being an “Absentee Landlord”. You may then find that you have to take out an indemnity policy for the benefit of your purchaser to cover off any risk for them.

What happens if I haven’t paid my rent?

If your ground rent has never been formally demanded during your ownership of the property, your buyer will likely require you to make a 6 year apportionment of the ground rent. This is because the freeholder can only ever claim for up to 6 years back dated ground rent, and therefore, should the freeholder demand the rent after you have sold the property, you will have paid what you owed to the new owner.

For further advice about purchasing a freehold property, contact Farleys’ residential property team on 0845 287 0939 or send your enquiry by email.