10 Things You Need to Know About Leasehold Property

Leasehold and freehold are two very different ways of owning residential property in England and Wales. Most people understand the basic concept behind freehold – but far fewer people really appreciate what owning a leasehold property really means.

1. Leaseholders don’t actually own their property. They just buy the right to live there for whatever time period is stated on the lease, subject to some conditions.Depending on the terms of the lease, they will probably have to get the permission of the freeholder if they want to make certain structural amendments or improvements to their property.

2. Most flats bought and sold in the UK are on a leasehold basis.

3. On rare occasions, houses can also be leasehold, although it is much more common for houses to be freehold instead.

4. The owner of the property is the freeholder, who is ultimately in charge.

5. If the lease expires, the leaseholders might have to leave their homes, or might have to pay rent to the freeholder. There is very little long term security in this situation – just a possibility of retaining an ongoing temporary or periodic lease.

6. There are more than 2 million leasehold properties in England alone, and the number is growing every day. Since the start of the 21st century, far more leasehold flats and apartments have been built than houses.

7. People living in a leasehold property pay an annual or monthly charge to the freeholder towards the upkeep of the building. The freeholder is responsible for arranging maintenance of the block unless the leaseholders have joined together to either buy the freehold of the block or exercised their right to manage

8. Properties with short leases are worth a lot less than properties with a long lease. This is because that if the lease expires, the property returns to the freeholder who can then sell it again.

9. .A shorter lease means that the freeholder is able to charge leaseholders more to extend the lease.

10. The answer, of course, to short lease problems is a lease extension –  and don’t forget, you have the legal right to extend your lease term by an additional 90 years –  whether your freeholder likes it or not.

Thinking of a Lease Extension? Contact us today

Our team are genuine leasehold extensions experts – so for great advice on extending your lease, please contact us today;

  • Call us now on [01722] 422300, or
  • Send us an email using the contact form below.

    Buying A Flat – Five Key Points About Leasehold Extension

    There are many different things to think about when you are buying a residential leasehold flat or apartment, or if you’re buying one of those rare beasts – a leasehold house. One of the main considerations is that the land on which your property is built does not belong to you, and this raises some important considerations to be aware of.

    1. Term of the Lease Remaining

    The first thing to look at is just how long there is left on the existing lease. The length of the lease is the time remaining for your ownership of the property. If the lease expires, the ownership of your property passes back to the freeholder, unless you have agreed to extend the lease beforehand.

    2. Rights to Extend Your Lease

    Most people who are buying a residential leasehold property just don’t understand their right to lease extension. This isn’t really surprising, as leasehold extensions are a complex area of the law with which many estate agents are not familiar and which many conveyancing solicitors don’t take the time to explain to their clients. In basic terms, once you have been the owner of your flat for two years – even if you have never lived there yourself – you have the legal right to compel your freeholder to extend your lease by a period of 90 years, whether they like it or not.

    As the period on you lease starts to run down, getting it extended becomes increasingly important. As well as facing the prospect of eventually handing the flat back to the freeholder, many property owners find out the hard way that flats with a short lease are difficult to get a mortgage to buy and therefore hard to sell. It’s also important to realise that if you want to extend the lease straight away after purchase rather than waiting for two years, the person who is selling the flat to you can start the process of extending the lease before the sale goes through and then pass that on to the buyer once the deal is completed.

    3. Service Charges

    It is standard practice for owners of residential leasehold properties to pay an annual service charge. These charges can be anything between from a few hundred pounds to a few thousand pounds every year. The service charge goes to the freeholder, and covers things like upkeep of the land and the building. Leaseholders are legally entitled to ask their freeholder for proof of how they are spending this money, and if freeholders cannot or will not provide receipts or evidence, it is a criminal offence.

    4. Reserve or Sink Funds

    Occasionally, a leasehold tenant is asked to pay into an additional fund called a sinking fund or a reserve fund. This find is designed to cover any unexpected disasters or major repairs to the building.

    5. Ground Rent

    It is a common clause in any lease that the tenant pays an annual ground rent to the freeholder. This is because you are classed as the temporary owner of your property, but are legally only renting the ground which it is built on. Ground rent is usually not a large sum, but if the lease says it has to be paid then there is no way around that. Look carefully at the lease to see what it says about increases to the ground rent. It is normal for there to be regular increases to ground rent, but ensure that you are not signing up to something which allows the freeholder to increase the ground rent substantially after a few years.

    However sometimes there are disputes about issues surrounding ground rent arrears – don’t worry if this applies to you, as we can help – our team also specialise in ground rent arrears cases.

    Being a property owner can be an expensive business and it might sometimes seem that the list of costs is endless. Many of the costs are associated with essential repairs and maintenance which you would have to cover yourself if you owned the property outright, and over the years the costs will balance out.

    It might sound like there are many drawbacks to owning leasehold properties, but they are often still a good investment. Apart from providing you and your family with somewhere to live, having a leasehold flat or apartment can be the first step on the property ladder and a way to owning a freehold house in the future.

    Before taking steps to buy a leasehold flat or other property, make sure that you get a specialist property solicitor to look over the lease and explain it to you in plain English. Residential leases are not standard and can differ hugely in their terms, so it is important to know exactly what you are getting yourself into and what your obligations are, both now and in the future.

    Interested in Leasehold Extension? Contact us today

    Our team are genuine UK leasehold extension experts – so for great advice on extending your lease, please contact us today;

    • Call us now on FREEPHONE 0800 1404544, or
    • Send us an email using the contact form below.

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    Buying a flat with an 81 year lease – the problems and how to overcome them

    Don’t let the fact that the flat you are considering buying has an 81 year lease on it make you completely rule out purchasing it. The critical amount of time left on a lease is 80 years. If the lease has below 80 years remaining the ‘marriage value’ component of the premium payable to the freeholder for the lease extension will add significantly to the cost of that extension – we are talking a few thousand pounds here at the very least.

    From the day that the remaining term dips under that critical 80 year period, the ‘marriage value’ will steadily increase as the length of the lease decreases – so extending the lease should ideally be done before it drops below that 80 years point.

    Insufficient time for your lease extension? Your options

    Unfortunately, although one year would give you enough time to get your lease extended under the relevant legislation, you would not be eligible to make that application as that same legislation stipulates that you must have owned the property for the minimum of two years. However, all is not lost and there are a number of possible options to save you from having to pay the marriage value. They are:

    1) Approaching the freeholder to extend the lease without having to make an application under the Leasehold Reform, Housing and Urban Development Act 1993 (as amended). The potential downside to this option is that the freeholder might refuse outright, mindful that when your lease drops below 80 years remaining they will receive a higher premium as a result of the marriage value. Or they might agree and then change their mind, or finally they might agree but impose an inflated premium and disadvantageous lease conditions on you, knowing that you have no legal protection under the Leasehold Reform Act. Additionally, with no legally binding timescale to comply with the freeholder might agree to extend the lease and drag his feet until the lease drops below eighty years remaining.

    2) You could approach your seller and ask if he or she would, their eligible permitting, apply to extend the lease, but there is the possibility that they would refuse on the grounds that the cost of the flat includes a discount for the dwindling lease.

    3) Finally you could see if the seller would be willing to serve the Initial Notice to extend the lease on the freeholder so that it can be assigned with the lease when the flat sale goes through. Once you have bought the flat you will then immediately be able to continue with the lease extension without having owned the property for the minimum two years specified in the Act. This option could be especially useful if you think that your mortgage provider would have problems with a property with a sub 80 year lease.

    Want help with your lease extension? Contact us today

    One of our specialist lease extension solicitors will be able to advise you in detail on what is involved in extending the lease on a property with an 81 year lease. Our team can advise you wherever you live in England and Wale,s and we don’t even need to see you – taking your instructions by e-mail, phone and Skype video:

    • Just call us on [01722] 422300 for a FREE initial phone consultation and a FREE quote for your lease extension
    • Complete the contact form below

      How much does it cost to extend a lease?

      How much does it cost to extend a lease is one of the most common questions we face.

      We would love to give a clear and straightforward answer – but unfortunately it’s quite complicated. However, when extending your lease, you will need to pay the following factors.

      A premium to your freeholder to extend the lease

      If you agree a voluntary lease extension without the need to issue a formal notice, then it’s really up to you and your freeholder how much you pay.

      However, if you opt to choose the formal statutory route to lease extension, whereby you need to issue a formal notice etc, there are a number of factors which any valuer needs to take into account when calculating the right price.

      NB in our experience, it’s well worth appointing a specialist surveyor – because, to be frank, most surveyors rarely if ever come across lease extensions and do struggle with them. Instruct us and we are happy to organise a surveyor for you who knows what they’re doing when it comes to lease extension, and who is local to your property]

      When coming up with the right valuation, it’s worth noting that every lease varies as there are a number of factors involved, including the location of the property, property price and the length of the lease term remaining. In particular, the premium or compensation which you will have to pay to your freeholder in order to extend your lease is made up of a number of factors including:

      1. The reduction in the value of the freeholder’s interest – which, in broad terms is how much your landlord’s interest in your property is now, compared with the that value after the lease extension

      2. The Marriage value. This only applies when the lease term is under 80 years – but it can make quite a difference to the price – usually £000s. That’s why it is critically important to get your lease extension before the remaining term of your lease drops even one day below that critical 80 year period

      3. the amount of ground rent payable under the lease

      In the most general terms, however your property is super expensive [e.g. a flat in London’s Grosvenor Square], or your lease is down to his last few years, the premium is usually somewhere between £3K and £50K.

      Professional costs in extending a lease

      Leasehold extension is tricky and there are many traps for the unwary, not least in the timetable. We strongly recommend that you appoint both a specialist solicitor who can guide you through the procedure, and a specialist surveyor who can accurately value the right price for your lease extension.[Click here to read more about reasons for appointing a specialist lease extension solicitor]

      So, in looking at how much it costs to extend your lease, you should add in the following professional costs;

      1. Your solicitor’s fees – for your information, we charge on an hourly rate, but to give you a rough idea, the average fees we charge for a routine lease extension will be in the region of £700 plus VAT for a voluntary or informal extension and around £1200 plus VAT if you choose to go down the statutory route.

      2. Your surveyors fees

      3. The reasonable legal costs of your landlord – to go down the statutory route, although the landlord has to grant your 90 lease extension, you also have to pay his legal costs – but they must be reasonable. In allowing for landlords legal costs, it’s worth noting that our team provide specialist city quality work at very competitive local prices – so don’t be surprised if your landlord’s costs are a little higher than the figures we quote above

      Statutory lease extension is designed to profit and incentivise the leaseholder

      It’s important to remember, when looking at the cost of extending a short lease that the system was originally introduced to support home ownership. As a result , and provided you get the right valuation first place, even after paying the premium to your freeholder and paying all relevant professional costs, the rise in value of your flat almost inevitably significantly exceeds those costs, leaving you in profit.

      In short, lease extension is one of the few areas where paying a solicitor is highly likely to actually makes you money!

      Looking to sell your flat, but haven’t got enough money to pay for a 90 year lease extension?

      Don’t worry – you have two alternatives;

      1. firstly, your solicitor can issue a notice to your freeholder to start the statutory procedure to increase your lease by 90 years – and your solicitor can assign, as part of the contract of sale of your property, the benefit of that application to the purchaser. This is particularly important because it means that the purchaser won’t have to wait until two years of ownership is up before applying for their lease extension – they can simply continue with the application for a 90 year lease extension started by you and your solicitor. If you got a short lease, this can make a real difference to your chances of getting a decent price for your flat on sale

      2. You can negotiate a short lease extension with your landlord. However, there are risks in going down this route – not least the fact that your landlord is not obliged to go ahead with the lease extension and can drop out at any stage. It may also find, that as part of the terms of a voluntary lease extension, the landlord may seek to impose other owners terms under a new lease, e.g. a significant increase in the ground rent, which could put off future purchasers, and make your property more difficult to sell

      Looking for specialist help to extend your lease?

      Our team is highly specialist – lease extension is all they do. Get in touch with us today.

      • Just call us on FREEPHONE 0800 1404544 for a FREE initial phone consultation and a FREE quote for your lease extension, OR
      • Complete the email contact form below

        The law surrounding leasehold property

        When you think about purchasing a house, you are likely to be thinking about the building you would live in. By contrast, English law recognises your ownership of the plot of land that the building stands on rather than your ownership of the building itself. Whilst this is of little importance where houses are concerned, it creates significant problems when it comes to flats and apartments.

        When you buy a flat, you cannot simply buy the plot of land like a house-buyer would because there are other flats as well. Instead, when you buy a flat, you effectively purchase the right to live in that property from the owner of the plot of land, and this right is formalised through an agreement called a ‘lease’.

        The highest form of ownership under English law is therefore ownership of the plot of land on which a building stands, or the ‘freehold’. Whilst the freehold title can change hands through inheritance or sale, it will never expire. The freeholder is owner of the freehold title and they are essentially able to use their land for whichever purpose they wish. They may simply want to live in a building on the freehold but they may also decide to let other people live in their property, which leads us to leases.

        It may be the case that a freeholder owns a piece of land but does not actually need to occupy it themselves at that time. Rather than simply sell the freehold, they may prefer to let you live in it if you agree to pay a fee. At this point you have effectively bought a pass to occupy the freehold and at any time, the freeholder could make this pass void – that isn’t something you are likely to buy into. Therefore, if the freeholder wants to make a profit, they will need to give you legal status through a lease or a tenancy so that you are willing to pay. (‘Tenancy’ and ‘lease’ are interchangeable terms but tenancies generally refer to agreements running for less than 7 years and leases refer to longer agreements).

        Owning a lease will entitle the holder to occupy or use the land for a certain period of time. It may be that conditions are attached to this lease, such as regular rent payments, or restrictions on what the land can be used for. However, what makes this a lease rather than a license or a pass for example, is that it awards ‘exclusive possession’ to the leaseholder. This means that the landlord and anyone else can be excluded from the property which essentially means that the leaseholder has control for as long as the lease lasts. This lease can be inherited or sold with the obligations and rights held under the lease passing on to the new leaseholder each time. However, unless you choose to extend your lease [and you have a legal right to force your landlord to do so], your lease will eventually expire – at which stage you will no longer own that property. That’s why you need a lease extension. Click here for more about why you should extend your lease.

        When a block of leasehold flats are sold, a lease with rights and obligations attached is given to each to each buyer. As well as each receiving these rights, each leaseholder gets exclusive possession of their part of the building standing on the freehold. A freehold with a block of flats will often remain in the hands of the developer however it may have been purchased by a property company.

        Looking for advice from UK solicitors with real expertise in extending leasehold property? Contact us today

        The law surrounding leasehold property can be very complex which is why you will need an expert lease extension solicitor to help you. Our dedicated team of property specialists can provide you with the leasehold extension advice you need, so:

        • Dial 01722 422300, or
        • Complete the contact form below to get in touch.