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A block of Leasehold flats. SAM Conveyancing answers: what is a leasehold?

What is the Meaning of Leasehold Property?

(Last Updated: 04/07/2024)
11 min read

The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published.

Some of the expected changes include:

  • 990 year standard lease extension for houses and flats
  • Standardised format for service charge bills, for greater transparency
  • Leaseholders will no longer have to pay their freeholder’s costs when making a claim
  • Freeholders who manage their building directly must belong to a redress scheme, so leaseholders can challenge them if needed (already applies to managing agents)
  • Ban on sale of leasehold houses, except in specific circumstances and schemes
  • Fair and transparent buildings insurance handling fees
  • Removal of two year requirement before statutory extension

While the existing act abolishes ground rent on lease extension and new leases, the new act does not cap ground rent on pre-existing leases.

There are 2 types of property ownership, called 'Tenure':

What is the meaning of leasehold property?

A lease is, in effect, a long-term rental; you own the property for a fixed period of time, although this can be extended for a fee. You'll have a contract of lease terms with the freeholder (the landlord) which covers the number of years you'll own the property, as well as certain rights, restrictions and obligations that you each must adhere to.

Most flats and maisonettes in England and Wales are leasehold, and some houses are too, including shared ownership houses.

How do I know the leasehold length?

The lease document will include the total number of years on the lease, as well as the date the term started. Always read the terms of the lease carefully. Beware of 125-year leases which started 35+ years ago, as they will have 90 years or less remaining, meaning you will almost certainly have to extend the lease after purchase. This isn't necessarily a problem, as long as you are prepared.

The estate agent won't necessarily tell you the leasehold length upfront, so you may have to ask for the tenure details. Within every lease there is a clause such as"...Term" means the term of years hereby demised being the term of 999 years from and including the Commencement Date..."

What happens when the leasehold expires?

When the lease runs out, the ownership of the property returns to the freeholder. You won't own the property anymore and you won't get any money back at the end.

What does share of freehold mean?

A share of freehold is a leased property that comes with a share of the freehold title. All or some of the leaseholders collectively own the freehold.

Is freehold ownership or leasehold better?

Each tenure option has its own Pros and Cons; choosing the right one will depend on your circumstances. The main differences are:

  • You have a lease to use a specific area/s in the property (such as a self-contained flat) with access through communal areas (such as stairwells and shared gardens);
  • You have a set number of years in your lease and if this expires you no longer have any rights to the property, you can usually extend the lease before it runs out, but lease extensions come at a premium;
  • There are restrictions for the use of your property (for example, no subletting); and
  • You pay ground rent and service charges.
  • You'll have less freedom over the property as you would with if you owned a freehold property outright, as we discuss below.
  • The purchase price of a leasehold is often a bit lower, but the ongoing costs are often higher.

Leaseholder responsibilities

These vary and will be specified in your lease. Typically they will include:

  • Obtaining permission before making alterations,
  • Paying for property maintenance,
  • Whether the leaseholder or the freeholder is responsible for certain repairs or complaints,

Thanks to the Leaseholder Protections granted by the Building Safety Act, most leaseholders are protected from the financial responsibility of remedying dangerous cladding.

Leaseholder rights

Certain rights are protected by law including the rights:

  • To access information about service charges and building insurance,
  • To know the landlord's name and address,
  • To be consulted regarding major works,
  • To challenge certain charges under certain circumstances, where you think the charges are unreasonable.

Your lease terms may also give you contractual rights such as access to shared areas beyond your private leasehold property (such as shared gardens, parking or leisure facilities within the freehold).

Leasehold restrictions

These vary but often include some combination of the following:

  • No pets
  • No subletting
  • You cannot use the residential leasehold for business purposes
  • You must keep the floors carpeted (usually for sound insulation)

Leasehold costs

  • Pay ground rent monthly

    Ground rent is a payment to your landlord which gets its name from renting the land or ground that the leasehold property sits on - which still belongs to the freeholder. If your original lease was granted before the 30th of June 2022 (including if you bought a pre-existing lease from another leaseholder) you will have to pay the ground rent as determined in your lease terms. If you have a new lease which was granted or formally extended on or after the 30th of June 2022, you usually do not have to pay any ground rent, although you will have a legally binding contract of peppercorn rent.
  • Pay service charges monthly

    This covers the service charges of managing the freehold, such as maintaining lighting, lifts, walkways, gardens, communal areas, cleaning and insurance. It may include a contribution toward a 'sinking' or 'reserve' fund for unexpected costs, or this may be paid separately, see below.
  • Pay for any major works

    Major works of repair, maintenance or improvement which the freeholder is responsible for and the leaseholders are responsible for contributing towards. Under section 20 of the Landlord and Tenant Act, freeholders are required to consult with leaseholders on major works where the actual cost to each lease will be more than £250, or £100 per year for projects ongoing over more than 12 months. This typically comes out of the sinking fund, but leaseholders can challenge major works which are unreasonable.
  • Pay one-off extension costs, if applicable

    As we have mentioned, when the lease expires, you no longer have any right to the property. If you wish to extend the lease you can quite literally buy more time. You may do this formally if you qualify for a statutory lease extension, or informally, with your freeholders cooperation. You will have to pay for a valuation, legal conveyancing fees, and a premium for the extra time.

The ground rent leasehold house scandal

From the early 2000s developers began selling new houses on leasehold tenure and retaining the freehold of the estate. This meant they were able to charge ground rent to the leaseholders. The problem was that the ground rent was often unfairly high, the cost for buying out the freehold was misrepresented as being affordable, the freeholds were sold on to investors for a profit, and the freeholders made use of loopholes forcing leaseholders to pay their freeholder's legal costs when they attempted to take them to court, even if the leaseholder ultimately won their claim.

The majority of these issues have been addressed in the Leasehold and Freehold Reform Act 2024. If your conveyancer failed to put your best interests first, and you are out of pocket as a result, get in touch to arrange a free consultation about bringing a professional negligence claim against them.

How many years is a leasehold length?

A leasehold length can be anywhere from 1 to 999 years. There are terms used for certain lease lengths which are:

Leases of 80 years or less fall in value. You can pay to extend your lease and protect or increase it's value.

What are the disadvantages of buying a leasehold property?

  • There are a number of additional variable monthly costs you have to budget towards, in addition to repaying any mortgage you have taken out to pay for your lease.
  • When the lease term expires, ownership of the property reverts to the freeholder. The longer you are in your lease, the less valuable your property becomes. Lease extensions involve considerable expense - and you must exercise this within set time frames.
  • Your lease may be subject to restrictive covenants - You may find, for example, that you are prohibited from keeping pets in your flat.

Does the lease end in less than 70 years? Beware!

Mortgage lenders normally only grant mortgages to purchase leasehold properties with remaining terms of more than 70 years. They expect you to have a lease term of 25 years and upwards AFTER you’ve paid off a 25-year mortgage. As stated, the shorter a lease becomes, the less valuable it is and the harder to sell. This is also why you cannot generally get a second mortgage on a property with a remaining lease of less than 70 years or any other loan secured on the property itself.

Changing or terminating the lease

It is possible to make changes to the details of a lease agreement using a deed of variation. This is straightforward if your landlord (the freeholder) agrees to the new terms but can become expensive if you have to negotiate or take the case to a tribunal. Get in touch if you require assistance changing the terms of your lease.

In rare circumstances, the landlord can terminate the lease and evict you; for example, where you have failed to pay your monthly fees or have been conducting illegal activity in the property. The freeholder would have to obtain permission from the court and give you written notice of forfeiture proceedings.

Frequently Asked Questions
Andrew Boast of Sam Conveyancing
Written by:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh Bailey, Digital Marketing Manager
Reviewed by:

Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.

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