Buying a Leasehold Property - What You Need To Know

Leasehold remains a very common form of property title, particularly in the North West.

According to the latest statistics from the Ministry of Housing, Communities and Local Government, 27% of properties in the North West are leasehold – the second highest proportion after London at 36%. By contrast, leasehold ownership in other regions of England ranges between 8% and 16%.

When you purchase a freehold property, you purchase the building itself and also the land on which the building lies. When you purchase a leasehold property, however, you own the building for a fixed period of time, known as the term of the lease, and you are “leasing” the property from the freeholder, who owns the land the property is built on.

The parties to the lease are yourself, the leaseholder or tenant; the owner of the land, being the freeholder and known as the landlord in the lease, and there may be a management company whose responsibility it may be to maintain common areas.

A typical lease term could be 99, 125, 250, or 999 years, but once the lease expires, ownership will return to the freeholder unless you apply to extend it.

It is important to keep up to date with how many years are left on your lease, as the property becomes less valuable as the lease term reduces. Generally speaking, mortgage lenders are reluctant to lend on properties with less than 80 years left on the lease.

It is important to check the lease to understand what you can and cannot do with the property, as a lease will commonly contain restrictions, known as covenants, which may be more onerous than those a freehold property may be subject to.

Some common restrictions include:

• Not making any external or structural alterations to the property, including an extension, without the consent of the freeholder or management company.
• Only certain pets are permitted to occupy the property with you, or not to have a pet at all without the consent of the freeholder or management company.
• Not to sublet the property without the consent of the freeholder or management company.

Commonhold, introduced by the Commonhold and Leasehold Reform Act 2002, offers an alternative to the traditional long leasehold system.

However, the original version of commonhold was not well received by mortgage lenders and developers, which limited its use.

New proposals are now aiming to revitalise commonhold, improving the structure and management of multi-occupancy developments or estates.

In theory, commonhold allows you to own the freehold of individual units (houses or flats) within a common building or estate.

A “commonhold association” would be formed and registered at Companies House and would be comprised of individual flat owners, for example. It would own and manage the common parts of the building and estate, such as the entrances, communal gardens, car parking, and the structure of the building itself.

Instead of a lease there would be a “commonhold community statement” which would grant rights for the owners of individual units to use the common parts and would agree the responsibilities between them.

A commonhold assessment would be paid, which would be a contribution towards the costs of maintenance, working in a similar way to a service charge.

Further legislation is expected to make commonhold a more widely used structure, and we are closely monitoring developments as they occur.