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Leasehold and Freehold | What is the difference and what is changing?

Moving House

Properties in England and Wales are usually owned as either a leasehold or freehold property. Freehold properties and Moving House Conveyancingthe associated land are owned outright for an unlimited period of time, however, as a leasehold owner, you do not own the land the property sits on and have a right to reside in a property for a fixed period of time e.g. 90 years or 999 years. At the expiry of the lease, you will have to vacate the property or purchase another lease. This type of purchase may involve additional payments to the individual or company that owns the freehold – including maintenance or ground rent. You will also be limited by the lease as to how you can alter or use the premises.

“The biggest reforms to English property law for 40 years”

It is estimated that around 4.5 million people in England currently own their home on a leasehold basis. Leaseholds have been the subject of controversy in recent years with some homeowners trapped in onerous leases with ever-increasing ground rents. This week reforms were announced by the Government that could give millions of leaseholders new rights, simplify the process and cap costs which could save homeowners thousands. The changes, which the Government has said are part of “the biggest reforms to English property law for 40 years”, do not yet have a confirmed date for implementation but the Government says it hopes to legislate as soon as possible.

How do I know if my property is leasehold or freehold?

Flats are commonly sold as leasehold properties with the builder retaining the freehold or selling it to a third party, houses are usually sold as freehold, but this is not always the case and in the past decade, housebuilders have increasingly sold new build houses as leaseholds. Many council houses purchased in the 1980s are also owned as leasehold properties, as well as some older terraced houses.

When buying a property, the estate agent should detail the tenure of the property – whether it is freehold or leasehold – and your solicitor will check the status of any remaining lease.

The property title deeds will confirm whether the property is freehold or leasehold, most property is registered with the land registry and you can visit the Land Registry website to search for an entry for your property to obtain a copy of your title.

Do I need to extend the lease?

If you own a leasehold property you have the right to extend your lease (granted under the Leasehold Reform, Housing and Urban Development Act 1993) if you’ve held the lease for two or more years.

As your lease approaches 80 years in length, extending your lease becomes necessary. Under 80 years you become liable to pay ‘marriage value’ on top of the costs of the lease extension, and it can also make your property harder to sell. However, extending a lease can take considerable time and can cost £1,000s. You will need legal advice to extend the lease, a solicitor will be able to offer advice and by following the formal “statutory” leasehold route to extending the lease, you will also be afforded better protection should there be any disagreements in terms of costs or other disputes. There are also time limits with the formal route to lease extension to help prevent delays by the freeholder.

What charges and issues should I be aware of with leasehold properties?

In recent years the leasehold sector has been the focus of some negative attention, with thousands of leasehold homeowners complaining they have been mis-sold or misled about the terms of their lease.

If you are considering buying a leasehold property you should be aware of the following potential common issues and costs:

  • Escalating ground rent – Ground rent is an annual sum the leaseholder pays to the freeholder. This may be a fixed amount of ground rent or there may be a clause that allows the landlord to increase this rent in years to come.
  • Service charges – Costs for maintaining the building each year, such as cleaning, roof repairs or for a management company.
  • ‘Marriage value’ or ‘hope value’ charges when extending a leasehold or purchasing the freehold – Charges paid which consider the potential gain from extending a lease or purchasing a freehold.
  • Short or onerous leases which make it hard to sell or remortgage.

How will leasehold change under the planned reforms?

The planned reforms come after the Law Commission proposed measures to make leases fairer and charges more transparent, while the Government has also said it plans to ban leaseholds on newly built houses.

There isn’t currently a date for the reforms to come into place and information on timescales, technical legal details and how the changes will work in practice is yet to be released, however under the reforms:

  • Leaseholders will be given a new right to extend their lease by 990 years with a ground rent at zero.
  • Ground rent payable when a leaseholder chooses to extend their lease or become the freeholder will be capped.
  • An online calculator will be introduced to make it easier to find out how much it costs to buy a freehold or extend a lease.
  • Prohibitive costs such as ‘marriage value’ will be abolished.
  • No ground rent if you buy a new retirement property.
  • A ‘Commonhold Council’ will be established to ‘prepare homeowners and the market for the widespread take-up of commonhold’. The council will comprise leasehold groups, industry and Government bodies.

Our conveyancing team are experienced in all types of property transactions and can offer advice and guidance concerning freehold and leasehold properties.

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