When looking to purchase a property, there are many important considerations; often it seems an overwhelming task. Arguably the most important distinction is whether you are going to buy a ‘leasehold property’ or ‘freehold property’. Before deciding which type of property is best for you, you must understand the difference between the two, as it will affect your rights and responsibilities. The aim of this article is to clarify the most important characteristics of a ‘leasehold’ property, by explaining what is meant by a lease and reviewing the advantages and disadvantages to consider before buying such a property.
What is a ‘leasehold property’?
Once you have bought a leasehold property, you will be known as a ‘leaseholder’. You will have a legal agreement with the landlord called a ‘lease’ that states how many years you will own the property for and under what conditions.
A lease is a contract between you and the landlord, who is also the ‘freeholder’. A lease defines your rights and responsibilities and the time period for which you will be given the property. Ownership of the property will return to the landlord when the lease ends.
What to consider before buying a leasehold property
Possibly the most important aspect to think about before buying a leasehold property to live in, is the amount of time left before the lease runs out.
If you agree with the landlord a lease of 100 years, this means you have the right to live in the property for 100 years. However, when you purchase a leasehold property from another leaseholder, the length of the lease does not start again. For example, if the lease is for 100 years and the current leaseholder has lived there for 30 years, you are purchasing the right to live in the property for the remaining 70 years only.
The length of the lease may affect your ability to get a mortgage or to sell the property in the future. If your lease is for less than 70 years, you may struggle to get approved for a mortgage, as most lenders will want the lease to last for at least 30 years beyond the end of the final mortgage repayment. This is to ensure that the property that they are giving you a mortgage on, still retains it value, as the property is the mortgage company’s security for the mortgage loan.
Having a short length of time left on a lease will make it difficult to sell the property. If there is under 80 years left on the lease, buyers may be reluctant to buy, as they will find it difficult to obtain a mortgage for such a property.
An important factor to consider are service charges. In some cases as a leaseholder, you will not be responsible for maintaining and running the building in which your property is located, the Landlord will do this. The Landlord may expect you to pay a service charge, covering any maintenance or repairs. Before signing a lease, you must consider these additional costs and decide whether they fit within your budget.
The Advantages of a leasehold property are:
- Typically less expensive.
- In some cases, less responsibility for repairs and maintenance.
- Provides a home for people needing short-term accommodation.
- There is still the possibility of buying the property outright, through enfranchisement, or share of the freehold.
The Disadvantages of a leasehold property are:
- When the lease expires, you will have to approach the landlord for a renewal, the landlord is not obliged to grant your request for renewal.
- The landlord has control over the amount of service charge costs that you have to pay.
- Your lease is subject to conditions that may limit the way you can use the property. For example, whether or not you can have pets.
- A short lease may prevent the resale of the property or your ability to get a mortgage.
This article has provided a general overview of the most important factors relating to a ‘leasehold’ property, aiming to clarify what can be an extremely complicated topic. A leasehold property can have many significant advantages, but before you buy a property make sure to research thoroughly and do not hesitate to speak to one of our Property Solicitors Online to get the legal advice that you need..