leasehold property
31st January 2020 by Property Deal Store Administrator in Investors

Leasehold Properties: All you Need to Know

What is a leasehold property and what do you need to consider if you’re buying one? Here we look into it for you.

As a property investor you will almost certainly have come across a great find only to see that it’s leasehold. It’s not always a problem but it can be if you don’t go in with your eyes open.

Leasehold vs freehold

Firstly, let’s look at the difference between leasehold and freehold.

A freehold means you own the building and the land that it sits on. Leasehold properties can be more complex as you won’t own the land, just the property itself.

It’s worth noting that if you’re buying an apartment this will nearly always be leasehold as you’re not buying the building just a unit of it, so of course you won’t own the freehold. Leasehold apartments and flats then are par for the course.

When multiple dwellings occupy a large building, like in the case of a flat, a lease usually comes with a separate ground rent or management fee that you will have to pay. This covers management and maintenance of communal areas such as entrance hallways, stairs, lifts, roofs, gardens and the building in general.

This is normal but make sure you check what you will need to pay and read all the terms of the lease carefully or get a legal expert to do so on your behalf.

If you’re buying a leasehold house though, you need to dig a bit deeper.

Leasehold: what to look out for

The term

Check the length of the lease when buying any kind of leasehold property. What was the original term and how long is remaining?

It’s common for older leasehold houses to have a long-term lease in place, usually 999 years from inception. If this is the case the lease will still likely have a long time to run which will cause you very few problems.

However, if there’s some terms you don’t like (which we’ll look at shortly) or another issue that comes with the lease, it may be worth contacting the freeholder via the conveyancers to see if they would be willing to sell you the freehold. This isn’t always possible or practical but in some cases it’s worth exploring.

Short leases

If there’s only a short time left on the lease, the property’s value can be severely dented.

Generally speaking, if a lease has less than 80 years to run, mortgage lenders, solicitors and estate agents will start to take a dimmer view. You will struggle to get finance (as will any potential buyer, making it very hard to sell) and you will get less for it in a future sale too.

It’s very risky to proceed with a purchase with a plan to extend the lease once you’ve completed, not least because you will have to wait two more years in order to do so, but it can be very expensive too.

It’s best to sort all this out before you buy and get the extended lease sorted by the seller. You might have to pay for this but if the lease only has a short time left to run, perhaps you can negotiate the price of the property down to cover it.

What are the terms?

As some leases are extremely archaic, some can come with a whole raft of terms that range from the bizarre to the concerning. It pays to have a professional (your conveyancer) go through the full terms of the lease in detail and then you need to consider your position.

If the previous owner has broken some of the terms themselves and you’re concerned these could come back on you during a future sale of the property, you could get an indemnity insurance policy to protect yourself.

Other considerations

As with all purchases that are more complex, buying a leasehold property will likely cost you more in terms of fees. Your solicitor will charge more for conveyancing to reflect the extra work and you might need to pay for additional searches or to dig up documentation lost in the midst of time. This might not be significant in terms of your overall investment but be prepared for higher costs than normal.

You will also have to pay ground rent every year. This is usually nominal (less than £10/year) on leasehold houses but not always, so don’t ignore it.

With potential complications come potential delays, so expect things to take longer when you’re buying leasehold. If you’re willing to put in the extra work and overcome the odd frustration though, there’s leasehold properties that represent great deals.

Leasehold terraced housing is particular common in northern towns. This shouldn’t put you off though as they usually come with 999-year leases. Therefore, potential minor frustrations during the buying process aside, you shouldn’t view these opportunities any different to freehold ones.

The PDS way

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-Janice Minihan, director and co-founder of Property Deal Store