E&V London A4 - Flipbook - Page 57
E n g E l & Vö l k E r s | B U Y E r s g U I D E
What is a leasehold? What exactly do you own?
Most flats and apartments in england and Wales are leasehold. leasehold ownership is a tenancy with the right to occupy and
use the property for a long period. it is not ownership of the building or the land the building sits on. the freeholder, also
known as the landlord, is the person or entity who owns the land and the building including the structure and common parts.
What is a lease? What are the associated rights and liabilities?
the lease is a contract between the leaseholder and the freeholder/landlord setting out the obligations of the two parties. it
is an important document and buyers of leasehold should ensure they understand it as much as possible. Under the lease, the
freeholder is, normally, responsible for the maintenance and repair of the building. if so, the costs for doing so are recoverable
through the service charges in the leases and billed to the leaseholders. You might have to pay a ground rent, and this should
be checked carefully by your solicitor. You will be required to keep the inside of the property in good order, pay your share of
maintenance and insurance costs and generally be a good tenant and neighbour. the lease is for a fixed period and so
decreases in length year by year. lease lengths vary and can run for as long as 999 years (typically known as a ‘share of
freehold’ interest). Most leaseholds are usually granted for original terms of 125 or 99 years and the property can be bought
and sold during that term. if buying a leasehold with an existing lease, it is important to verify how long is left on the lease.
What happens when you buy a leasehold?
Make sure that your solicitor explains the terms of the lease fully when you are purchasing and reports to you on any
restrictions in the lease. common restrictions include subletting the property or carrying out alterations. there will be a
service charge for maintenance and insurance of the building, which you will pay to the freeholder/landlord (likely via a
managing agent). The service charge will vary year to year. It’s important to check what the current and future service
charges are likely to be. also check if there is a reserve fund or any plan for upcoming major works that you will need to budget
for after your purchase.
Lease length
If you buy an existing lease, it is advised that the lease has at least 85 years left as buying a shorter lease (under 85 years)
could give rise to complications, such as difficulties with mortgages and decreasing property value. a lease can be extended
by paying compensation to the freeholder/landlord. the best way to extend a lease is to utilise statutory rights. this entitles
qualifying leaseholders to extend existing leases by adding 90 years and reducing any ground rent to nil. This will have a
positive effect on the value of your property. the length of a lease retains the value in a leasehold property.
Advantages and disadvantages of leaseholds
When considering purchasing a property in london, it’s essential to weigh the advantages and disadvantages of opting for a
leasehold property. one significant advantage is that buying a long lease can hold equivalent value to owning a freehold,
granting the same right to live in the property for an extended period. Maintenance responsibilities for the building and
communal areas typically lie with the landlord or management company, relieving homeowners of these burdens. however,
leasehold properties can entail paying ground rent and service charges, which could increase over time (however this is due
to change with leasehold reform). There might also be limitations on property alterations, requiring prior consent from the
freeholder. lastly, as the lease term diminishes, the property’s value may be affected, and lease extensions can involve
additional costs. in conclusion, purchasing a leasehold property in london offers certain advantages, but it is crucial for
buyers to carefully consider the terms of the lease and its impact on their long-term investment.
Leasehold reform
in recent times, there have been significant developments in leasehold reform aimed at benefiting leasehold property buyers
in london. the proposed reforms seek to decrease ground rents to nominal or ‘peppercorn’ amounts, making homeownership
more affordable and ensuring leaseholders are not burdened by escalating charges. additionally, these reforms are designed
to grant leaseholders the right to collective enfranchisement, allowing them to purchase the freehold collectively with their
fellow leaseholders. this empowerment will provide greater control and security over the property and ultimately enhance
the value and desirability of leasehold properties in the city. With ongoing efforts to reform leasehold practices, the future
outlook for leasehold buyers is becoming increasingly favourable, reinforcing the attractiveness of this ownership option.
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