someone explain freehold vs leasehold to me....(16 Posts)
....we are buying a flat in London. Have seen a few places this week and would quite like to make an offer on a very nice place - however it is leasehold not freehold. Has a 166 year lease. We know what the ground rent/service charge is and it's reasonable.
We would only be planning to stay in the property for about 5 years at the most.
Is it a massive mistake to buy leasehold? I know I would have to check the terms of the lease etc - we have cats for example so it would be no good if it stipulates no pets.
any advice helpful!
freehold, its yours. You are buying the building.
leasehold, the building belong to someone else and you are paying upfront for a very long lease (in your case 166 years - which means you will be able to sell it on to someone else since you are clearly not going to live that long).
In some situations leasehold properties can depreciate in value once the lease becomes short (from memory way back in law school I think less than 99 years was considered short) since you then have less ability to sell on the remaining lease. Once the lease expires (if it ever does - it might be renewed at a cost) then the property just reverts automatically back to its owner, the leaseholder.
Flats are typically leasehold as one person, the freeholder, will own the whole of the building. 166 years should be fine, even if you ended up living there for 10 years. It is hard, if not impossible, to get a mortgage on anything under 60 years. I can't remember the detail but if you have more than 90yrs on the lease & have lived there for 2 yrs you can apply for an extensor for a fairly token amount.
In addition to what atticus said, it is highly unlikely that you will be able to purchase a freehold flat, as presumably it forms part of a block in which case carving out individual freeholds creates many more issues.
The lease is likely to be an internal demise,meaning you will only 'own' the interior of the flat, and often Windows, external walls etc are excluded, this means that the landlord is responsible for these.
The lease will also contain restrictions on what you can do with the flat (eg. Structural alterations) and in the communal areas (if any)
Once the lease becomes too short it is unmortgagable, but you can apply for an extension, so it's unlikely to really pose any issues. In any event, you won't be around long enough to worry about that.
In short, leasehold is nothing to worry about and very, very common!
Flats are pretty much always leasehold, a man Co or similar will own the freehold. In London there are lots of big leasehold estates (en Crown Estate Houses round Regents Park) and it is common for new build properties to be long leasehold. If you are moving in 5 years or so the residue of the remaining 166 years shouldn't be problematic to sell on, problems arise where there's a very short term left (Iess than 25 years) so the next purchaser runs risk of not being able to afford to purchase a new lease and thus can't get a mortgage. Your conveyancing solicitor should explain more, and advise re any covenants in the lease that could restrict your deals with the property, and reassure. If your lender is happy I wouldn't worry.
thank you very much! was freaking out about it a bit but as you say all flats are leasehold though a few are 'share of freehold' (don't really understand that either)
I'd be more inclined to avoid share of freehold to be honest. It's a complicated set up.
thank you atticus, that's actually really helpful.
Ive recently sold a leasehold flat in London -there were 87 years left and I had heard that below (I think 83) it gets difficult.
What I would say is seriously consider it -there will be lots of hidden fees -especially when you sell -for example -they sent me a bill for £300 because I had a sky dish, a bill for a further £300 because I hadn't asked permission for it (it didn't specify calmly state it in the lease but they said it was covered by a certain clause), I also got a bill for £700 for not maintaining the garden -it was fine but had just been winter so didn't look as good as it usually would! I was able to have the charges for the sky dish removed -after quite a lot of to-ing and fro-ing and taking photos of before, during and after its removal.
There was also a discrepancy over the layout of the flat -the records they had were out of date from when I had bought it and I hadn't changed the layout.
It does take considerably longer to sell and they do charge for a lot of things at the end stage.
After my experience I vowed never to buy leasehold again but as long as you are informed and go in with your eyes open it should be fine.
I would also suggest being "nice" to the management company -another neighbour who was selling wasn't, so they wouldn't budge on removing the fees that they had to pay for things.
Hope that helps.
thecherry maybe that explains why this place hasn't sold yet then, it's been on the market since early October and it's really gorgeous. In London for a reasonably priced very nicely done up flat to still be on the market over a month later is quite unusual. Maybe the leasehold is the reason why!
It really depends on a leasehold. I own a leasehold house where the freeholder is our residents association of 60 houses. We manage it ourselves and pay very low fee. The term is 900+ years. I don't suppose the house will be standing for that long!
166 years is actually long and shouldn't be a problem. But there may be issues with the management company, or unexpected expenses. I don't think you can get a freehold flat and you probably wouldn't want to. It is important to take care of the state of the building.
That is quite a while for London -might be worthwhile speaking to the estate agent -could they be turning offers down -maybe not getting the price they want and the buyers in the position they want? Maybe some sales have fallen through or perhaps they still want to keep marketing the property up to exchange (I did this for fear over the buyer pulling out if they got wind over the management fees/setup). I would phone the estate agents - play it stupid -ask questions and see what answers you get. Good luck.
Sorry -just to add -it could still be for sale for a normal reason but I know that in my 'block' another vendor lost 2 sales because the management company were so slow in putting together the management pack (which for us was 1 page!). -it's another possibility for why it's still for sale but you won't know til you speak with the agents -or -arrange a viewing and ask the vendor. It's strange as well that there aren't open houses set up for it?
Personally I wouldn't touch leasehold again as I too was held to ransom when selling my flat, also got landed with large unavoidable bills for maintenance.
In England it's not at all common to have a flat that isn't leasehold (or share-of-freehold). The reason being that the shared elements of the building have to be maintained by someone. If the lift breaks down, or the roof leaks, who pays for it? If there's a shared garden, who pays for the gardener? Who decides when communal hallways are repainted? Who co-ordinates all of this and makes sure things are maintained regularly? Who insures the building?
This is private property, not something the council is responsible for. Nor is it something you can easily negotiate with, say, 20+ people on an ad hoc basis. Boundary issues can be bad enough with two parties!
You need some sort of management agreement to state the responsibilities of the tenants, even if with share-of-freehold it's then up to the residents what to do. But residents with share-of-freehold will still be working within an agreed and legally binding agreement: the lease.
I believe it's different in Scotland, where freehold flats are more common, but they will still have some way to decide all of this.
Having recently be involved with a group writing their own lease for share-of-freehold (with professional advice) it is also clear that mortgage companies have requirements to do with resale. Even if the current occupants can say they do or don't care about something, mortgage companies don't want anything that might put off future buyers. This is where some of the aesthetic requirements, such as controls on external dishes, come in.
Share of freehold usually means that you have your leasehold flat and also a share of a company owning the freehold of the property.
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