What about Buying a Leasehold Property
ASK THE AGENT
Q. At the moment I can only afford to buy a flat, but these all seem to be leasehold. What does this mean, exactly, and what are the sort of issues I need to consider?
A. You’re right, the vast majority of flats are indeed leasehold. That’s because, under English law, no matter how many individual homes may occupy a particular piece of land, there can still only be a single freehold.
The best way to think of a lease is therefore as a kind of long-term rental agreement. With a lease, you are basically buying certain rights to a property for an extended period of time – typically 99 years, but in some case anything up to 999 years. As such, both you and the freeholder are bound by the terms of the lease agreement. An important thing to remember about such agreements is that while they all share certain basic elements, there is actually no such thing as a standard lease. Subject to the various statutory rules and regulations, the detailed terms and conditions can vary wildly – which is why you need to have a good solicitor go through them with a very fine toothcomb.
Another important factor to consider is the length of time still outstanding on the lease, since the fewer years it has left to run, the harder it may be to sell in the future. As long as you have already held a lease for at least two years, you are legally entitled to have it extended, but this will come at a price, since the freeholder is entitled to compensation for having to wait longer to get their property back! In this context, the crucial point comes when a lease has less than 80 years remaining, since at that stage, in addition to the afore-mentioned compensation, the leaseholder also becomes liable to pay something called “Marriage Value.” This is based on the notion that a property with a newly extended lease obviously has a higher market value – and the freeholder is therefore entitled to 50% of that increase.
If you have held a lease for more than two years, you may also be entitled to buy the freehold – again, at a price. The rules are slightly different for houses and flats, but in the case of the latter, you need to work together with all the other leaseholders in the building in order to become joint freeholders.