Most property in the UK is owned freehold, where the owner acquires complete legal ownership of the property and land and his rights over the property, which can be modified only by the law or specific conditions in the contract of sale. Most houses, whether detached, semi-detached, terraced or townhouses, are sold freehold. Most apartments in England and Wales (rare in Scotland) are sold leasehold, which includes some 3 million homes (mostly in cities and on the south coast), where you buy the property, but not the ground on which it stands. The freeholder owns the site and charges the leaseholder an annual ground rent; the leaseholder must also pay an annual service charge to the freeholder to cover the maintenance and repairs of the building and its common parts.
Length of Leasehold
The leasehold property is owned for a specified number of years, after which ownership reverts to the freeholder. Ownership is limited to the life of the lease, for example, 80 to 100 years for an old building and up to 999 years for a new building, unlike most other countries, where apartments or condominiums are owned outright under a system of co-ownership. Leasehold law means that you can pay a fortune for a home and technically still not be able to call it your own. At best, leaseholders pay only ground rent on their homes, but there can be restrictive rules whereby they can be forbidden to change their curtains, wallpaper or even keep pets. Abuses by landlords such as charging high ‘administration’ costs, presenting leaseholders with bogus bills and harassment are also commonplace.
A property can change hands several times during the life of a lease and when the lease expires the property reverts to the original owner (the freeholder). When buying a leasehold apartment, the most important consideration is the length of the lease, particularly if it has less than 50 years to run, in which case you will have difficulty obtaining a mortgage. Most experts consider 75 years to be the minimum lease you should consider. Leases often contain special terms and conditions, which should also be taken into account. For advice or information about leases, contact the Leasehold Advisory Service (Tel. 020-7490 9580, www.lease-advice.org), who can also provide an application form for a Leasehold Valuation Tribunal.
Buying the Freehold
Since 1993 when the Leasehold Reform, Housing and Urban Development Act became law, leaseholders have had the right to buy the freehold between them, called a joint freehold, and many apartments are now sold not with a lease, but with a share of the freehold. However, there are strict rules regarding residence and the procedure can be long and the cost uncertain, therefore it’s essential to obtain advice from an experienced solicitor. Owners of a joint freehold can choose to manage the building themselves or employ a managing agent, although it’s generally better to have a managing agent as it avoids the disagreements that inevitably arise when owners manage a building themselves.
The 1993 act also made it possible for some leaseholders to extend their lease by 90 years and if the freeholder decides to sell the freehold he must give the present tenant right of first refusal to buy it. New legislation should extend leaseholders rights and alter the balance of power between freeholder and leaseholder. Under a new type of ownership for apartments called commonhold, leaseholders have the right to buy the freehold and establish a commonhold association to manage the common parts of a property.
For information contact the Leasehold Enfranchisement Advisory Service (6-8 Maddox Street, London W1R 9PN, 020-7493 3116), which provides free advice and maintains lists of valuers and solicitors who specialise in leasehold properties. If you sell a lease that was drawn up before 1996, you must ensure that your solicitor includes an indemnity in the contract that allows you to pass liability for any debts on to the new leaseholder, otherwise you could be held liable. This anomaly was abolished in the Landlord and Tenants (Covenants) Act of 1995.
This article is an extract from Buying, selling & letting property (UK). Click here to get a copy now.