By Lucy Davidson from Ratcliffe & Bibby Solicitors.
It never ceases to amaze us just how many people are not sure the difference between Freehold & Leasehold. When clients are asked, we receive a lot of ‘silences’ at the end of the telephone, or quite honest responses stating – “I have not got a clue” or “I do not know what you are talking about”.
When purchasing a property, it is vital to know whether the property is Freehold or Leasehold as this means the difference between owning the property outright or having a Landlord.
A Leasehold property can be an apartment or a house, but in either case, the property is leased from the Landlord (also known as the Freeholder) for a set term of years, and at the end of the term, the property ownership reverts back to the Landlord (although in certain situations there may options available to extend the Lease for a fee). The Leasehold property may also be subject to a yearly ground rent and or service charges to cover maintenance of the properties and any communal areas. Whilst none of these factors should sway you from what could well be “the house of your dreams”- we do consider that the terms and conditions of a Lease should be known and absolutely understood by a client prior to proceeding with a purchase. A good Estate Agent should be able to outline the features of a lease to any prospective purchaser, and it is most certainly worthy of investigating prior to applying for mortgages and such like.
Due to many concerns over new-build houses being sold as Leasehold, the Government confirmed in June 2019, that they have banned the sale of new build houses as Leasehold, meaning that any new build houses built after this date should always be sold as Freehold (except in exceptional circumstances).
In the case of new build houses (constructed prior to this new government legislation) and new build flats/ apartments – a brand new Lease is provided, and the most common terms are either 125 years, 250 years or 999 years. However, if you are taking on an existing Lease, it is important to establish the remaining term as this could affect the value of the property. As a general rule, the longer left on your Lease, the better, as properties with short Lease lives can be difficult to sell.
Each Mortgage Lender has its own requirements for Leasehold property, and for how many years must be remaining on the Lease, and this information can be found on the Council for Mortgage Lenders Handbook. https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1846/.
A Lease will also contain covenants that you must abide by, and these can include: Permission from the Landlord to alter or extend, permission from the Landlord to keep pets, conditions on what flooring you can have or what can be displayed externally and parking restrictions.
Leases also contain a forfeiture clause whereby the Landlord can take possession of the property for breach of covenant or failure to keep up with the ground rent and/or service charges. In most cases, this is beneficial to property owners to know that their neighbours must contribute towards the maintenance and abide by the covenants. For example, if an apartment was freehold, there would be no Landlord in place to enforce the covenants and collect costs and make arrangements to maintain any communal areas or to ensure that the building is insured, and indeed some Lenders will not lend on Freehold flats/apartments.
Whilst many parties believe conveyancing to be a very simple procedure – it is not. We at Ratcliffe & Bibby Solicitors believe in going that extra mile with our clients – it is important that your Conveyancer fully explains the terms within the Lease as well as checking that the Lease satisfies Lenders requirements with the term of years, acceptable ground rent charges and acceptable forfeiture clauses. It is vitally important that every buyer of a Leasehold property understands the Lease before purchasing the property – this can and does have an onward impact to both you and the possible future value of any such purchase.
Our Conveyancing Team here at Ratcliffe & Bibby Solicitors can answer any queries you have regarding Leases or Leasehold properties. We are here to assist you and simply a call away.
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