What is a leasehold property?


What is a leasehold property?

When you’ve been looking to buy a property (especially a flat or apartment), you might have seen the term ‘leasehold’ mentioned in some descriptions. But what does this mean for you if you buy a leasehold house?

Freehold and leasehold are both legal terms and can mean the difference between actually owning your house and the land it’s built on, and having a contract with someone who has ownership of the land. This can affect you when you come to sell the property in the future, so let’s take a look at what a leasehold property is and some of the problems you could encounter.

Leasehold vs freehold

Buying a freehold property means you’re the sole owner of the building and the ground it’s built on. This means that you won’t have to pay any ground rent and you won’t have as many restrictions over what you can do in the property.

A leasehold property means that you just own the house but not the land. You lease this land from the freeholder and they ultimately hold the power of making any changes to the house. Generally, flats are more likely to be sold as leasehold and houses are more likely to be freehold, but it is possible to find a house that’s a leasehold property.

If you’re a leaseholder, you may have to get the freeholder’s permission before you make any major changes to the structure of the property. You may also be subject to some other restrictions, like not being allowed to keep pets there or make too much noise. Leaseholders also have to pay ground rent to the freeholder and this is usually between £100 and £200 a year.

Problems with leasehold

Leases usually last for a long time, such as 90 or 120 years. However, it’s important to note that this was the total length of the lease when it started. If someone else has owned the property for 20 years or so, the lease could be just 70 years now.

That might still not seem like something you need to worry about for the immediate future but if you plan to live in the property for 30 years, you might struggle to sell it with just a 40-year lease. This could also mean the value of the property will decrease and it may end up making less money than you’d hoped – or it could even be worth less than when you first bought it.

You shouldn’t necessarily avoid all leasehold properties but you should be wary of one with a short lease, generally less than 80 years. If a property that you’re looking at only has 20 years or so left on the lease, you might be able to get the freeholder to extend the lease before you buy it. You could also do this once you’ve bought a leasehold property and you’ve been living in it for less than two years.

If the property you’re trying to get an extended lease on is a house, you usually won’t have to pay a premium to get the term increased. However, if you’re trying to get a lease extended on a flat, you might have to pay for this.

You could also buy the lease on your leasehold house or flat. This is called ‘enfranchisement’ and can be a difficult process involving a Section 13 Notice. If you’re considering purchasing the lease on a property, you should consider taking out legal advice. However, it could mean that you’ll have fewer difficulties when you come to sell the property and it might mean it’s worth more in the future.

Have you got any more questions on buying a house? Take a look at our mortgage guide for the answers >