Leasehold is an ownership of a piece of land or a building for a certain period of time. When you buy a new property or piece of land that is leasehold, you are known as a lessee. You will own the land or property for the period of time stated on the lease agreement, and the freeholder (with the use of a solicitor) will draw up a lease for a specific amount of time. The freeholder can also be known as a lessor or landlord.
When buying land or property that is leasehold, the longer the lease the more valuable it is if it is resold in the future. The reason 99.9% of flats with more than one unit in a block are leasehold is due to the fact there will be communal space around the flat, and one flat might be on top of another. This means it is more practical for the land and whole building or block to be owned by a freeholder, who would make arrangements for the communal areas to be looked after by a management company, or possibly by themselves as a freeholder if small enough. This means that the leaseholders would not be in constant dispute about who is responsible for looking after areas that are shared by the owners of the units. This usually means that the freeholder or management company will levy a charge often referred to as a service charge that is payable annually to cover the cost of maintaining the communal space. This could include gardens, hallways, lighting, roof etc .
Also the freeholder has a right to charge for the ground that the leasehold property stands on, and is referred to as ground rent, which is mostly charged annually to the lessee. It is always advisable to make sure when buying a leasehold property that you are aware of any additional costs are levied like service charge and ground rent, as you might get an unpleasant surprise as services charges can be in the £1000’s - especially if a car park or gym is provided in the complex.
Also if buying in an older complex in a big block, planned maintenance for the complex might be coming due. For example, complete roof replacement, cladding for the building, complete redecoration of hallways, replacement of lifts etc. The result of any such planned works could mean huge bills being passed down to the leaseholder. Getting your solicitor to uncover this is recommended, and usually it is done as standard. Also your solicitor will look for strange clauses that affect the lease, which might be a immediate problem, or a problem that will be in the near or distant future.
When buying leasehold property, if a mortgage is needed to buy the property, the length of the lease will have a real bearing getting the mortgage accepted. Most lenders will have a minimum lease length. If you have set your heart on buying a particular property with a short lease it is possible to negotiate with the freeholder for the lease to be extended. This can be expensive depending on how greedy the freeholder is, and can amount to tens of thousands. It is sometimes possible for a mortgage lender to agree to covering the cost of a lease extension in your loan, if it fits within their loan to value criteria. This would mean the valuer sent by the lender will be asked to value the property taking into account the proposed lease extension, which will complete simultaneously with completion of the purchase.
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