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Financial Services > Mortgages > Leasehold Property > Buying leasehold property

Buying Leasehold Property

Buying a leasehold property

When looking for a new property you need to check whether the ones you are considering are leasehold or freehold. Many home buyers don’t understand what a leasehold is, how it works, the rights it gives and the responsibilities that it entails.

This is the mortgagecase.com guide to leasehold properties.

For those people who are buying, or are considering buying, a leasehold flat or house it is essential to know what owning a leasehold home entails. Flats are more often sold on a leasehold than houses.

Apart from the cost of buying your home, leaseholders will have to pay ground rent and service charges which includes building insurance.

What is a leasehold property?

Leasehold flats may be in purpose-built blocks, converted houses or part of commercial or retail premises. Leasehold houses are much rarer but are often in a street or development of houses which all come under the same freeholder. In the case of houses, many owners have since bought the freehold.

Leasehold ownership of a flat fundamentally means a long tenancy - the right to own, occupy and use a flat for a long period known as the 'term' of the lease.

This can be up to 999 years but can be just a few short years in some cases.  Within that period, the flat can be bought and sold. From the outset of the lease, the term is fixed, and decreases every year. At the end of the lease, the flat is returned to the owner of the building. Look out for the terms 'long' lease and 'short' lease on the property details which refer to the number of years left on the lease.

Even though a leaseholder owns the property on a lease, the owner of the freehold retains ownership of the external and structural walls, as well as any common parts of the structure. The owner of the building is also responsible for the maintenance and repair of the building.

Leasehold properties may be owned by either individuals or companies, and sometimes by housing associations or local authorities.

Often, leaseholders get together to purchase the freehold of the building in which they live by creating a residents’ management company.  At least half the leaseholders have to agree for you to be able to go ahead but if there are only two flats in the property – which is typically the case with a converted house – then both owners have to agree.

Alternatively, you can buy an extension to your lease which is often necessary once it falls beneath about 80 years. Whether buying the freehold or extending the lease, you will have to negotiate to agree a price.  

What is a lease?

In the eyes of the law, a lease refers to a specific contract that exists between the owner of a property and a leaseholder that provides the latter with conditional ownership for a fixed period of time.

Leases are extremely important documents, and both parties should keep a copy of the agreement and make sure that it is understood. Leases are usually worded in legal jargon so it's advisable to consult a lawyer or solicitor before going ahead with your purchase as they can sometimes contain unusual clauses.

Leases lay out the contractual obligations of both parties: the leaseholder and the freeholder. The lease sets out the leaseholder’s obligations as well as any restrictions and conditions regarding the property. Usually, the landlord is required to maintain and manage the structure of the property, as well the outside and any common areas.

Leaseholders may not be totally free to do what they wish with the leasehold property. The restrictions can be major or minor. For instance, you may need permission from the freeholder before knocking down internal walls or having a pet. The conditions of the lease are intended to protect the rights of all those with an interest in the building.

When a flat is sold, the seller passes all the rights and responsibilities of the lease to the purchaser, including all future service charges.

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