What is the Meaning of Leasehold Property?

There are 2 types of property ownership, called 'Tenure':

• Leasehold Tenure
• Freehold Tenure

What is the meaning of leasehold property?

A lease is, in effect, a long-term rental; you own the property for a fixed period of time, although this can be extended for a fee. You'll have a contract of lease terms with the freeholder (the landlord) which covers the number of years you'll own the property, as well as certain rights, restrictions and obligations that you each must adhere to.

Most flats and maisonettes in England and Wales are leasehold, and some houses are too, including shared ownership houses.

How do I know the leasehold length?

The lease document will include the total number of years on the lease, as well as the date the term started. Always read the terms of the lease carefully. Beware of 125-year leases which started 35+ years ago, as they will have 90 years or less remaining, meaning you will almost certainly have to extend the lease after purchase. This isn't necessarily a problem, as long as you are prepared.

The estate agent won't necessarily tell you the leasehold length upfront, so you may have to ask for the tenure details. Within every lease there is a clause such as"...Term" means the term of years hereby demised being the term of 999 years from and including the Commencement Date..."

What happens when the leasehold expires?

When the lease runs out, the ownership of the property returns to the freeholder. You won't own the property anymore and you won't get any money back at the end.

What does share of freehold mean?

A share of freehold is a leased property that comes with a share of the freehold title. All or some of the leaseholders collectively own the freehold.

Is freehold ownership or leasehold better?

Each tenure option has its own Pros and Cons; choosing the right one will depend on your circumstances. The main differences are:

• You have a lease to use a specific area/s in the property (such as a self-contained flat) with access through communal areas (such as stairwells and shared gardens);
• You have a set number of years in your lease and if this expires you no longer have any rights to the property, you can usually extend the lease before it runs out, but lease extensions come at a premium;
• There are restrictions for the use of your property (for example, no subletting); and
• You pay ground rent and service charges.
• You'll have less freedom over the property as you would with if you owned a freehold property outright, as we discuss below.
• The purchase price of a leasehold is often a bit lower, but the ongoing costs are often higher.

Leaseholder responsibilities

These vary and will be specified in your lease. Typically they will include:

• Obtaining permission before making alterations,
• Paying for property maintenance,
• Whether the leaseholder or the freeholder is responsible for certain repairs or complaints,

Thanks to the Leaseholder Protections granted by the Building Safety Act, most leaseholders are protected from the financial responsibility of remedying dangerous cladding.

Leaseholder rights

Certain rights are protected by law including the rights:

• To access information about service charges and building insurance,
• To know the landlord's name and address,
• To be consulted regarding major works,
• To challenge certain charges under certain circumstances, where you think the charges are unreasonable.

Your lease terms may also give you contractual rights such as access to shared areas beyond your private leasehold property (such as shared gardens, parking or leisure facilities within the freehold).

Leasehold restrictions

These vary but often include some combination of the following:

• No pets
• No subletting
• You cannot use the residential leasehold for business purposes
• You must keep the floors carpeted (usually for sound insulation)

Leasehold costs

• Pay ground rent monthly

  Ground rent is a payment to your landlord which gets its name from renting the land or ground that the leasehold property sits on - which still belongs to the freeholder. If your original lease was granted before the 30th of June 2022 (including if you bought a pre-existing lease from another leaseholder) you will have to pay the ground rent as determined in your lease terms. If you have a new lease which was granted or formally extended on or after the 30th of June 2022, you usually do not have to pay any ground rent, although you will have a legally binding contract of peppercorn rent.

• Pay service charges monthly

  This covers the service charges of managing the freehold, such as maintaining lighting, lifts, walkways, gardens, communal areas, cleaning and insurance. It may include a contribution toward a 'sinking' or 'reserve' fund for unexpected costs, or this may be paid separately, see below.

• Pay for any major works

  Major works of repair, maintenance or improvement which the freeholder is responsible for and the leaseholders are responsible for contributing towards. Under section 20 of the Landlord and Tenant Act, freeholders are required to consult with leaseholders on major works where the actual cost to each lease will be more than £250, or £100 per year for projects ongoing over more than 12 months. This typically comes out of the sinking fund, but leaseholders can challenge major works which are unreasonable.

• Pay one-off extension costs, if applicable

  As we have mentioned, when the lease expires, you no longer have any right to the property. If you wish to extend the lease you can quite literally buy more time. You may do this formally if you qualify for a statutory lease extension, or informally, with your freeholders cooperation. You will have to pay for a valuation, legal conveyancing fees, and a premium for the extra time.

How many years is a leasehold length?

A leasehold length can be anywhere from 1 to 999 years. There are terms used for certain lease lengths which are:

• Long lease - Although many use this term for a lease of 999 years, a long lease is a lease of a term of years absolute in excess of 21 years when originally granted (not as at now).
• Short lease - A short lease is any lease that has 80 unexpired years left to run. You can read more about buying or owning a property with a short lease here.

Leases of 80 years or less fall in value. You can pay to extend your lease and protect or increase it's value.

What are the disadvantages of buying a leasehold property?

• There are a number of additional variable monthly costs you have to budget towards, in addition to repaying any mortgage you have taken out to pay for your lease.
• When the lease term expires, ownership of the property reverts to the freeholder. The longer you are in your lease, the less valuable your property becomes. Lease extensions involve considerable expense - and you must exercise this within set time frames.
• Your lease may be subject to restrictive covenants - You may find, for example, that you are prohibited from keeping pets in your flat.

Changing or terminating the lease

It is possible to make changes to the details of a lease agreement using a deed of variation. This is straightforward if your landlord (the freeholder) agrees to the new terms but can become expensive if you have to negotiate or take the case to a tribunal. Get in touch if you require assistance changing the terms of your lease.

In rare circumstances, the landlord can terminate the lease and evict you; for example, where you have failed to pay your monthly fees or have been conducting illegal activity in the property. The freeholder would have to obtain permission from the court and give you written notice of forfeiture proceedings.