What is a leasehold?
Updated June 17, 2021
One of the most important things to understand when you buy a property in the U.K. is its legal ownership. The two terms you need to know are freehold and leasehold. You can look up a property on the Land Registry to determine its status.
Owning the leasehold, or being a leaseholder means that you are the legal owner of the property you buy, but not the land it sits on, or, usually, the communal spaces that your property might be part of. In the U.K., the majority of apartments are sold as leasehold properties, so in most cases any stairwell or elevator, communal front door, entranceway or porch would be owned by the freeholder.
As the name suggests, you are technically only “leasing” the property for a set amount of time, which can be confusing for those who are buying rather than renting a home.
You are the owner for as long as your lease lasts, however, and when it comes to an end it would be legally passed to the freeholder. This is unlikely to happen, however, as leases can last for hundreds of years, and they certainly should last many decades. If you have less than 80 years left on a lease it could damage the value of your property and you will need to pay the freeholder to extend it, which can be expensive.
Owning the leasehold, or being a leaseholder means that you are the legal owner of the property you buy, but not the land it sits on. Photo: Pixabay
While it is difficult to put a precise figure on how much it will cost to extend a lease, it is based on a complex calculation, including the anticipated rise in value of your property once the lease is extended. But you will need to negotiate this with your freeholder. There are online calculators that can give you a guide, such as lease-advice.org/calculator/ from the Leasehold Advisory Service. It suggests, for example, that on a leasehold property in central London worth £2 million, with about 100 years left on the lease, you’d pay between £11,000 and £17,000 plus costs, but that could rise to over £100,000 once the lease has less than 80 years left.
Your solicitor should tell you how many years are left on the lease when you buy the property.
If you live in a leasehold property in a block of apartments with communal spaces such as hallways or elevators, you can expect to pay a service charge, which is a regular sum of money paid to the freeholder, or the managing agent that a freeholder appoints to look after the building, to cover its upkeep. You will receive a contract detailing what you can and can’t do as a leaseholder before you enter into a contract for the property. That might include having to ask permission from the freeholder to make changes to your property, such as knocking down walls or painting the outside of a building. You should also be told whether you or the freeholder are responsible for any repairs or alterations, such as replacement of a roof.
You may also have to pay a ground rent to your freeholder.
Leaseholders should understand how much these costs are likely to be, before they buy, and whether they may rise over time. Your conveyancing solicitor should be able to explain how the lease works and what to watch out for. You should also think about resale value. If you sell in the future, how many years or decades will be left on the lease? Will other buyers be happy to pay the service charge if it rises?
There have been many controversies about leaseholds in the U.K., including property owners who are charged escalating and unaffordable service charges or ground rents, who feel trapped in their homes. The U.K. government is in the process of changing the law to give more rights to leaseholders.This includes the right to extend your lease by a maximum term of 990 years at zero ground rent in order to protect leaseholders from escalating ground rents and the sense that you are paying high costs to live in a property that you own. This could save some leaseholders tens of thousands of pounds.
As it is you can usually only extend your lease for 90 years at a zero ground rent. The government will also be introducing an online calculator to make it easier to see how much it will cost to extend a lease or buy your freehold and to stop freeholders quoting or negotiating unreasonable sums.