As a leaseholder, you own the property for a specified number of years, but not the land it sits on. Leasehold ownership comes with unique legal rights and responsibilities. So, before you buy a leasehold property, it's crucial to get expert legal advice as this area of law can be quite complex.
At GloverPriest, our specialist leasehold solicitors have a wealth of experience with leasehold properties. We can help you make informed decisions and guide you through the entire process, ensuring your investment is well-protected.
What is Leasehold Property?
Leasehold property is a type of ownership where you own the property but not the land it sits on. This is different from freehold, where you own both the property and the land.
Leasehold properties are common in England and Wales, especially for flats. This is because flats share common areas that need maintenance. However, some houses are also leasehold. Historically, many houses were built on large estates where landowners were hesitant to sell their land for freehold development.
Additionally, houses can be leasehold if purchased through shared ownership schemes. As a leaseholder, you own the property for a fixed period and have limited control over its management and maintenance.
The length of the lease varies. If your lease drops below 80 years, you should start considering your options as a shorter lease can reduce the property's market value and make it difficult to secure a mortgage if you decide to sell.
Generally, leases are between 99 to 125 years, but exceptions exist, such as in Manchester and Liverpool, where some terraced houses have 999-year leases with very low ground rent.
Leasehold vs Freehold
Understanding the difference between leasehold and freehold is very important when buying a property.
Leasehold
- Ownership: You own the property for a set period, as stated in the lease.
- Control: Limited control over the property, with the freeholder often being responsible for the upkeep and maintenance of the building.
- Common in Flats: Most flats are leasehold due to shared common areas.
- Costs: Includes ground rent and service charges.
Freehold
- Ownership: You own both the property and the land it sits on indefinitely.
- Control: Full control over the property, including maintenance and repairs.
- Common in Houses: Most houses are freehold, offering full ownership rights.
- No Extra Costs: No ground rent or service charges.
Choosing between leasehold and freehold depends on your immediate needs and long-term plans for the property.
What Happens When a Leasehold Expires?
When a leasehold expires, property ownership reverts back to the freeholder, even if you've paid for the property outright. Essentially, the leasehold title and the freehold title merge into a single freehold, and you no longer have legal rights to the property.
However, leases rarely run out completely, as most are extended well before their end date. If your lease does expire, the tenancy continues under the same conditions until either you or the landlord decides to change it. The landlord might propose a tenancy with a monthly rent or could potentially seek a court order to regain possession.
Knowing how much time is left on your lease is important, as extending the lease well before it ends is usually a wise move.
Finding Out How Long You Have Left on the Lease
Determining how long you have left on your lease is straightforward. Start by checking your lease agreement or the title deeds from the Land Registry, which can be downloaded from their website for a small fee. Alternatively, you can request this information from your solicitor or the freeholder, though they may charge more.
If you're considering buying a leasehold property, the estate agent should provide details on the remaining lease term. Your solicitor will also flag any short lease concerns during the conveyancing process.
Leasehold Reforms 2024
The Leasehold and Freehold Reform Act, which became law on 24 May 2024, introduces important changes aimed at giving homeowners more control and protection over their properties.
While the Act is now law, only a few minor amendments to the Building Safety Act will take effect on 24 July 2024, allowing repossession for missed rent payments. The rest of the reforms will be implemented in stages by the next government over the coming years. Until then, the current leasehold laws remain in effect.
Key Reforms:
- Cheaper Lease Extensions and Freehold Purchases: Beneficial for those with short leases, as marriage value is abolished.
- Longer Lease Extensions: Extending the standard lease term to 990 years for houses and flats.
- Greater Transparency: Standardised billing and detailed year-end reports for service charges.
- Easier Management: Leaseholders can manage buildings with up to 50% commercial floor space.
- Reduced Costs: Often, leaseholders won’t need to pay the freeholder’s costs for enfranchisement claims.
- Access to Redress Schemes: Leaseholders can challenge poor practices, with freeholders required to join a redress scheme.
- Simplified Transactions: Setting maximum times and fees for home buying and selling information.
- New Protections: Banning excessive building insurance commissions and the sale of new leasehold houses.
- Removal of Ownership Requirement: New leaseholders can extend leases or buy freeholds without waiting 2 years.
- Ground Rent Buyout: Introducing a legal right to buy out ground rent without extending the lease.
These reforms aim to make leasehold ownership fairer and more transparent, giving leaseholders more control and protection.
How to Extend Leasehold
In the UK, leaseholders have the right to extend the lease on their property through either a formal or informal process.
Formal route for a leasehold extension
The formal route is often preferred because it follows a set procedure that protects your rights. If the freeholder disagrees, there's a mechanism for resolving disputes.
Informal route for a leasehold extension
The informal route involves negotiating directly with the freeholder. While it can be quicker and cheaper, it doesn't offer the same legal protections, and the freeholder may not agree to all the terms.
Costs involved in a leasehold extension
Extending a lease comes with costs that vary depending on the property's value, the remaining lease length, and the ground rent. Generally, the shorter the lease, the higher the cost to extend it. You'll also need to cover the freeholder's legal fees.
It's important to remember that not extending a lease can be more expensive in the long run, as a shorter lease can significantly reduce the property's value and make it harder to sell.
Should I Extend My Lease Now or Wait?
Deciding whether to extend your lease now or wait depends on several factors. If your lease is approaching 80 years, it’s generally advisable to extend it sooner rather than later. Once a lease drops below 80 years, the cost of extension increases significantly due to the addition of the marriage value. Additionally, a shorter lease can impact your ability to sell or remortgage the property.
The Leasehold and Freehold Reform Act, although now law, won't fully come into effect until 2025 or 2026 with changes implemented in stages, so any reforms to the lease extension process are still some time off.
Given this timeline, it’s difficult to give a definitive answer on whether you should wait for the reforms or extend your lease now. Consulting with GloverPriest’s specialist leasehold solicitors is crucial to making the best decision for your situation.
Options when the lease ends
You do not need to do anything if the lease expires unless you receive a notice from the landlord to end the agreement. For the lease to end formally, either you or the freeholder will have to take specific steps to end it:
- You can voluntarily surrender the tenancy.
- The freeholder could serve a notice and get a court order to gain possession.
- The freeholder could serve a prescribed notice which proposes an assured tenancy for a set term where you could pay monthly rent.
If none of these options happen you can continue to live in the property as a tenant, and you may be able to extend the lease. As this is a complex and costly process, it is highly advisable to get expert legal advice.
How Much Does It Cost to Buy the Freehold of a Leasehold House?
Buying the freehold of a leasehold house can vary in cost depending on several factors. These include the property's current market value, the length of the remaining lease, and the ground rent. Generally, the shorter the remaining lease, the higher the cost to purchase the freehold.
Additional expenses will include legal fees, valuation fees, and possibly negotiation costs with the freeholder. The property's value and the ground rent will also play a significant role in the final price.
Buying the freehold can be considered an investment, particularly as it eliminates any ground rent charges and grants you full control over the property. It's wise to get legal and financial advice to understand the total cost and implications fully.
Should You Buy a Leasehold Property?
If you’re considering buying a leasehold property, it's essential to understand the implications and potential challenges. Leasehold properties can be a good investment, particularly if they come with long leases and a low ground rent. However, shorter leases can decrease the property's value and make it harder to sell or remortgage.
How Can GloverPriest Help?
At GloverPriest, our expert conveyancing solicitors have extensive experience in property law and can guide you through lease extensions, freehold purchases, and all related legal complexities. We provide friendly and transparent legal advice to help you make informed decisions about your property.
If you need further assistance with your leasehold property, don’t hesitate to speak to one of our expert conveyancing lawyers today. Complete our enquiry form to get in touch.
