Mon 18 Feb 2019
Lee Whitelock, Director MNAEA
What does it mean to own the leasehold?
The leaseholder owns the property while the freeholder owns the land on which it is built. Moreover, the leaseholder owns the property for a fixed period of time, as outlined in a contract with the freeholder.
If you are the leaseholder, you have certain responsibilities, which are also outlined in the contract. You are in charge of any interior maintenance, including plasterwork and floorboards. The freeholder, on the other hand, is responsible for any exterior or structural work the property needs.
What to consider before buying a leasehold property
One important thing to be aware of is that owning a leasehold property comes with annual service charges, which you have to pay to the landlord (or freeholder). These charges cover things such as building maintenance, building insurance and the cleaning of communal areas, if you own a flat. The charges can be pretty hefty, in some cases.
Furthermore, you might need to pay into a so-called ‘sinking fund’. The purpose of this is to cover any major repairs that the property needs, such as replacing the roof.
Some landlords may require you to pay ground rent. These charges could be a negligible amount, but they can also be much higher and can spiral over the years. For this reason, the government wishes to ban the sale of new-build houses as leasehold.
Extending your lease
If your lease is for 90 years or more, then there is no hurry to extend it. However, if you have a short lease or are approaching the 80-year mark, you may wish to consider extending the lease.
Extending a short lease can be expensive. Therefore, you should be extremely wary of buying a property with a leasehold close to or less than 80 years. Money Saving Expert has an excellent step-by-step guide to extending your lease.
Buying or selling a leasehold property
You may find it difficult to get a mortgage on a property with a short lease. In addition, the cost of a lease extension may mean you would be unable to sell the property at market value.
The solution is to try to keep your lease above 90 years. Alternatively, see if you have the option to buy the freehold. Then, if you wish to sell your leasehold property, potential buyers will be able to obtain a mortgage.
As this is such a common form of tenure for London flats, you may find that your dream property is leasehold. While, the reality of owning a leasehold property can be complicated and costly, don’t be put off. Just make sure you understand the facts and take expert advice before extending your lease or buying and selling leasehold property.
If you are thinking of buying or already own a leasehold property in SE1, central London and the surrounding areas, then contact our team of experts today.