What does it mean to buy/own a property leasehold?
There are two ways to buy a property – leasehold or freehold. Buying a leasehold property means you are a long-term tenant and have a legal agreement with the landlord (freeholder) stating how long you will own and occupy the property. When the lease ends, the freeholder regains the right to occupy the property.
Most apartments are purchased leasehold which isn’t a problem but there are several issues you should examine.
First, be aware of your responsibilities. Although leases vary, typically you are responsible for everything within the walls of the property, including floorboards and the plaster on the walls and ceiling. You must keep the apartment ‘in good order’, pay the service charge and behave in a ‘neighbourly’ manner. You must pay ground rent to the freeholder and, if you wish to carry out alterations, ask their permission. If you wish to let the property, you must obtain consent from the freeholder.
The freeholder usually owns the land on which the building stands and everything within the building, including the flats, structure and common parts. They organise buildings insurance, maintenance and repairs to the building and communal areas, recovering costs from leaseholders through a service charge.
Before purchasing, check the lease to see how much the service charge is. A leaseholder can receive summaries of costs for work and copy invoices. The service charge also covers the cost of a managing agent.
Most residential buildings have a residents’ management company, whose only shareholders are the leaseholders. A Board of Directors decide on the appointment of managing agents, service charges and any work to be done. There will be a reserve (sinking) fund to pay for major expenses.
Lastly, ask if you could extend the lease – this is usually a good idea, particularly if it has less than 82 years to run, after which the flat starts to lose value and the lease becomes expensive to extend. Also, you could consider buying the freehold. Consult a solicitor for advice on these issues.
Marc Von Grundherr
Benham & Reeves Residential Lettings