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Whats the Difference Between Leasehold and Freehold?

Purchasing a house is one of the most complicated and stressful events most people will go through in their life. In the mix of all the legalities, mortgages and just hoping the purchasing chain won’t fall through often really important details get overlooked. That’s where Mistoria can help ease the process by being proactive with all parties involved.

Over the past few years something called the ‘leasehold scandal’ has been popping up in the media. The people who have been caught up in it did not realise when they bought their house what exactly they were buying when they signed the contract. This is not common in the North West you will be pleased to know, but we thought it would be worth writing this article to let you know what the issue is all about.

Leasehold and Freehold

In British law there are two different forms of home ownership, one is freehold and the other is leasehold. To get the former out of the way first, a freehold is what you’d expect when you purchase a house once you’ve signed on the dotted line, all of the property is yours. So if the property you are looking at is freehold then you can’t be affected by the issue and this is therefore the preferred option. That doesn’t mean however that any leasehold property must be viewed with concern, far from it, but it is worth checking the details of the lease.

If you’re in the process of purchasing a leasehold property what in reality that means is you’re buying permission to occupy that property for a set number of years, usually a very extended period far beyond the life of the building itself for example 999 years. New build properties on new estates seem to be where most of the shorter leaseholds are causing problems.

Leaseholds may sound like a form of rent (and some do argue it is) traditionally leasehold rents are for a very long time, usually between 100 to 999 years. When you purchase a lease, the freeholder usually has some responsibility for maintaining public areas around the property. So, for example, if you buy a leasehold flat the freeholder may be responsible for maintaining the staircases and lifts – typically the maintenance comes with a small rent to pay.

On top of maintenance fees, the leaseholder also usually pays a ‘ground rent’ – literally a rent on the land the property is built on. It’s these payable rents where the scandal has broken out, for a long time the rents were usually very small, some people would pay an annual ground rent of £1 a year, so a tiny sum and this is still very common.

But recently some property builders have been discovering the law around leasehold is very complicated and massively in the favour of the freeholder, giving them leeway to increase rents without any say by the leaseholder.

In return, this has meant people are now paying attention to the fact their property is leasehold and discovering how this may impact them.

Check with Mistoria and we can advise

So, if you’re buying a house what should you do? Firstly there is no need to panic. It is worth noting that the vast majority of people who live in leasehold properties have not been affected by the scandal.

Nevertheless, make absolutely sure you know what you’re buying, check with us and we can advise you the leasehold status of the property you are considering. Secondly, if it is leasehold ask for a copy of the lease and get it checked out by a lawyer that knows the area well. As a rule of thumb any lease that is less than 80 years can start to significantly affect the value of the house, but it all depends on what is in the contract.

If you do buy a leasehold, often it is possible to buyout the leasehold at an additional charge and become the freeholder. Do this as soon as possible, the owners may be willing to sell it for a few thousand.

Property law in Britain is very old, some of the stories coming out of the leasehold scandal date the ownership of the land back to the 1600s which all means it is intensely complicated and hard to understand. However, the scandal hasn’t gone unnoticed by the government, and while it has been accused of taking its time to tackle the issue at the start of May the Competition Market Authority announced it was going to start a full inquest into the issue. Whatever the results of the inquest are, there is enough political will in parliament for some significant change, although what and when that change will come into force is anyone’s guess.

So for the moment just give us a call and in the vast majority of cases you will find there is no problem.