What Does Leasehold Property Mean


What Does Leasehold Property Mean

04 May 2021

Introduction:- There are two types of legal property ownership: freehold and leasehold. If you buy a leasehold, you own the building but not the land it's built on. Freehold is used for the type of ownership where you have both the property and the land it's built on. A leasehold is held for a certain amount of time.

Leasehold means that you either take over a new lease created by the freeholder or take on the existing lease held by the property's previous owners. You will have to pay the ground rent when you buy a leasehold property on someone else's land, although it's often a nominal annual fee.

There may be restrictions on modifying a leasehold. For example, you cannot make significant structural changes, add an extension, or change its use (from residential to commercial) unless you are given the freeholder's permission.

Unless you extend the lease, ownership goes back to the landlord or freeholder at the end of the tenure. Therefore, it is a legal requirement to declare the tenure as freehold or leasehold.

Most flats and maisonettes are owned leasehold so that you may own your property in the building, but you may not have a stake in the building it is in.
Some houses are sold as leaseholds, and if you buy leasehold, you own the property, but not the land it is built on.

The tenure can be up to forty years or more than 99 years. 

The Actual Logic and The Myths- Why Leasehold Properties Are Less Desirable?

1. Financing organisations Favor Freehold Assets: 

In most countries other than the UK, the lease is not considered a valuable and saleable asset; instead, a lease or letting or equivalent is understood as a short-term arrangement where the tenant or occupier pays the rent to live in the property. Buying a leasehold property has certain risk factors, so lending organisations do not prefer it. 

Some countries give the tenants statutory rights to continue to stay in the property after the written contract, or the tenancy agreement is over. However, a leasehold property has a valuable and marketable interest in real estate in the UK. 
 
2. Freeholds Are Permanent Properties: 

The difference between leasehold and freehold is that leasehold properties are mostly flats, and some are houses. With a leasehold detached house, you do not own the land, and if it's flat, you don't own communal areas.

You will have to pay the ground rent, and you need to know how much you will have to pay and when the rent will increase. 

A lease may include certain restrictions; for example, you may not be allowed pets, and you may need permission to change the design or structure of the property. If you break any terms of the agreement, you could be taken to court and may risk losing your lease.

The freeholder has to pay for the building's insurance (though they may not have to take the contents insurance) and the maintenance costs.

3. Mortgage Is Dependent On Lease Term 

Typically a lease has at least 80 years, or you might struggle to get a mortgage. This is one of the disadvantages of buying a leasehold property.
 
4. This Is A Time Taking Proceeding: 

Is my house freehold or leasehold? It depends on the contract that you are making with the previous owner or the landlord. You need to conduct thorough research before you purchase a property. 

In the UK, there is a concept of a leasehold as a valuable and marketable property but is subject to having the details checked by a solicitor. 

Houses are bought as leasehold, but it is less common than flats. Houses are sold with a freehold, and in some cases, a holder of a long lease will also have a right to buy the freehold of the house. Therefore, it can provide an additional investment opportunity.

The highest grade of title is freehold, where every piece of real estate has a freehold owner. When a flat is first sold, the freeholder grants/issues a lease to the buyer. Full market rent is not paid, but ground rent is often charged. The lease provides management rights to the renters; for example, the leaseholder will have to contribute to the communal expenses -repairs, maintenance and cleaning.

5. A Leasehold High-Rise : 

A leasehold meaning the property has a renewal option. A long lease is more than 21 years when granted. By convention, a long lease can vary from 99 or 125 years and extend up to 999 years. It is important that if you want to buy an apartment, then you must buy a leasehold interest. Whilst it is sometimes possible to buy a share in the freehold, the title to the flat itself will be leasehold. 

It is for technical legal reasons. A leasehold title to a flat is perfectly acceptable and marketable. A freehold flat is rare and, perhaps surprisingly, is considered defective and less marketable than a leasehold flat.

6. Leasehold Assets Are Cost-Effective Than Freeholds: 

Most people usually prefer freehold because it can always ensure that the properties carry a maximum premium. Besides, if somebody searches for something with a good value, the person should go with the first one. When buying a leasehold property, you should consider the remaining term of the lease. 

What Does Leasehold Property Meaning? 

The leasehold is a term that can be defined as the lease to a particular property that the owner can access within a particular period. 

What to Check Before Buying A Leasehold Property? 

Every leasehold flat consists of a lease agreement that defines the period within which the freeholder has the right to buy the property. Therefore, you must check the lease documents carefully before signing the agreement.

Here are some factors that every freeholder must inspect for buying a leasehold property:

The Number of Years: The time of the lease plays a major role in deciding the overall value of the property. Hence you must do all the research.

Ease of Extension: Legally, the term of extension of the lease can be increased after the person has owned the property for at least two years. The process of extending can also be lengthy in some cases. Make sure you know the rules applicable to the property you are buying.

Ground Rent: The freeholders need to pay a fixed amount of ground rent. It may increase or decrease with time and other conditions. Hence you must check the rent to bargain the price.

Permissions: Check out all the restrictions and permissions associated with the property. 

How Does A Leasehold Property Work?

You may buy a property within a short lease which could affect your chances of getting a good resale price when you move. For example, if you buy a property with a leasehold of 80 years and stay there for 25 years, the next owner will buy a property with just 55 years left. That will make your property difficult to sell. 

The new buyer might struggle to get a mortgage, and you'll probably find that the value of your property has declined because it is less attractive to other buyers.

What Is the Difference Between Leasehold and Freehold Property?

Here are some differences between leasehold and freehold property:-

The leasehold property defines the lessee as the original owner of the property. Thus the number of restrictions will increase, and the person must live according to the fixed rights.

In a freehold, you may have to bear all costs related to the repairs, garden maintenance and insurance. Usually, there are no maintenance charges unless you share services like communal gardens or common areas with your neighbours. 

The person who rents the place gets all the advantages and rights once they settle in the place. They can change and use the property as they wish to once they fully control it.

The period of lease is fixed. Hence the person has to leave the property once the contract gets over. However, a freeholder owns the house or land and is not bound by a contract to leave the house after completing the term.

Is My House Freehold or Leasehold?

Is my house freehold or leasehold? You can see the land registry website to know if your house is freehold or leasehold. Search for the specific entry of your house to get all the details and terms in a documented form. The website will contain all the information about your property with the government rules. You should understand the terms properly before you plan to rent out your property. 

Nowadays, homeowners complain that they were never informed about the exact status of their house, but they should check it out to ensure their legal rights on the property.

Major Disadvantages of Buying A Leasehold Property

Some of the major disadvantages of buying leasehold property are listed as follows: -

  • The owner might charge extra service charges on repairing or maintaining areas, such as the lawn, lift, garden, and others. Thus the price may vary from time to time and cause difficulties to the people living on the property. The owner will decide what to change and, accordingly, will pay the amount.

  • Although the money is charged, the services provided by the homeowners may not be up to the mark.

  • After the expiration of the lease, it is the individual's job to approach the owner so he may extend it. However, the owner is not bound to grant the extension, and they can cancel your renewal according to their profits or interests. 

  • The lease puts restrictions on the way you live within the house. You need to follow the limitations that may seem frustrating at some time.

 Conversion of A Leasehold Property into A Freehold Property

  • If you are a leaseholder, you can look into buying the freehold. If the property is a house, you may be able to buy the full freehold.

  • It can be a lengthy and expensive process. You will have to cover other costs on top of the sale price of the freehold, including the stamp duty, legal fees, valuation fees, land registry, the freeholder legal and valuation fees. 

  • Buying the freehold can be a complex process, especially if many tenants are involved.

How Long Should A Lease Be When Buying A Flat? 

The owner of the house fixes the period of a particular lease. One can obtain the right to extend the lease period once the person stays there for at least two years. If the lease is less than 80 years, you might have to pay a higher price to the homeowner to buy it.

Conclusion:- Most leasehold properties are apartments flats, though some are detached or separate houses. With leasehold, you do not have the rights to the land on which the property is built, and if it's flat, you don't own the stairs or hall, nor the structure of the building itself. But, you will pay ground rent and other charges as determined in the agreement. 

Also, before making an offer to buy a leasehold, you'll need to consider the number of years left, the total budget of the real estate and the length of lease that will affect the mortgage and resale value of the property.

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