Many people don’t know that there are different tenures of property. The most common are freehold and leasehold and there are very important differences between them
Our guide will help you to understand what leasehold and freehold means and also help you to understand the differences in the conveyancing process and the additional time it takes to complete conveyancing on a leasehold property.
Most houses are freehold properties, although leasehold houses are quite common in the Bristol area. This means that when you purchase the property you are also purchasing the land that it stands on too. After you have purchased the property, the land and the property contained in the deeds is yours forever (known as in perpetuity).
Owning a freehold property is a good option as you won’t have any additional costs that are associated with a leasehold property. You can find out more about those additional costs next.
Leasehold properties are usually flats. The ground that the flat is built on is owned by a landlord and the people who own the flats pay a ground rent each year to the landlord. When you purchase a flat, you only own the flat but not the land that the flats are built on.
You lease the land from the freeholder/landlord, usually for a long period. This is commonly 90 or 120 years but can sometimes be as long as 999 years. If you are considering buying a property with a very short lease of less than 80 years, you should take advice from a professional as this may cause issues in the future when you come to sell the property. Many high street mortgage lenders require a minimum unexpired lease term so you should also check that the remaining lease term is acceptable to your proposed lender before you purchase the property.
As a result, you may have to pay an annual ground rent charge to your landlord. Some leasehold properties are not subject to ground rent as the flat owners have purchased the land between themselves, effectively becoming their own landlord. In these circumstances, you would still be a leaseholder, but you would not need to pay any ground rent, as you would be paying this to yourself!
In addition to annual fees for ground rent, there are other additional costs connected with a leasehold property.
The freeholder will manage and maintain the external parts of the building, arrange buildings insurance and be responsible for all the internal shared parts of the property.
Because the freeholder has these additional expenses, they will pass these charges onto the each leaseholder in a number of ways. These are normally with maintenance fees, service charges and the buildings insurance costs too.
When you add up these costs, they can be significant so if you are considering buying a leasehold property, before you proceed, you should make sure that you can afford both the monthly mortgage payments and all the additional extras on top.
An additional challenge with leasehold properties is that the freeholder can decide they want to carry out works on the property, and all the leaseholders will have to pay their share. The costs to complete works can often seem inflated so be prepared to have to sometimes find significant amounts of money to complete work on the building.
Other Leaseholder Restrictions
If you own a leasehold property, your landlord can impose other restrictions on your property. You will have to ask for permission to complete any major works to the property and you could also have to ask permission to have cable TV installed or a satellite dish put on the outside of the building.
You could be stopped from having pets in your own property, if the lease says you can’t. Some other restrictions could be that you are not allowed to sublet the property. This is an important factor if you are buying the flat as a buy-to-let investment.
So you can see that there are some considerations to make when you are buying a leasehold property.
One other factor to take into account is that the conveyancing process usually takes longer because there is additional legal work to be completed. Factor this into to your timescales, particularly if you are working to a tight deadline.
If you need advice on buying or selling a property call us now on 0117 926 4121 or contact us online. We will help you.