If you own a flat or an apartment it’s more than likely that
you own the Leasehold of the property and not the Freehold. But does this
matter? It’s your flat, right? Leasehold, Freehold, is there much difference?
Well, yes there is. If you own a Leasehold property, or are thinking of buying
a Leasehold property, it is in your interests to understand what Leasehold
means and what is documented in your Lease.
House owners probably own the ground the house is built on.
This is called Freehold. However, with a property comprised of multiple flats
or apartments that are sold separately to each other, these are usually sold as
Leasehold. The flat owner has purchased a flat and is allowed to use that flat
within the terms set out in the Lease for a fixed period of time. Someone else
owns the land the flats are built on. The flat owner is the Leaseholder and the
land owner is the Freeholder or Landlord.
There is a relationship between the Freeholder and the Leaseholder,
where both parties have responsibilities. The terms of this relationship, including the responsibilities and restrictions of
both parties, are defined in a document
called a Lease. When a Leasehold flat is sold, the new flat owner agrees to
abide by the terms to meet their responsibilities and adhere to the
restrictions detailed in the Lease document. The Lease is a legally binding
It is the responsibilities and restrictions detailed in the
Lease every prospective or existing Leaseholder must be aware of and not taken
lightly. Not every Lease is the same. There is no ‘one size fits all’. The Lease
will have been drawn up by the Freeholder or land owner so there may be parts
of the Lease that favours the land owner and disadvantages the Leaseholder.
When flats are purchased the focus of the buyer may be on the size of the flat,
location, spec of the kitchen and bathroom etc. In many cases, there is little attention given to the Lease or contract
the buyer is agreeing to whilst they own the flat. The detail in the Lease is
far more important than the type of integrated cooker there is in the kitchen,
if the sale includes the light fittings or how old the boiler is.
What should you look out for?
The Length of the Lease
The Lease will have a fixed term, an end date. When this end
date is reached, the ownership of the flat reverts back to the Freeholder. A Leaseholder
is buying time to use a property for a fixed period. The longer the Lease the
better. Many new builds have a 999 year Lease, some are 125 years. Many houses
that were converted into flats in the 80s and 90s were given 99 year Leases.
Once a Lease drops below 80 years it can be much more difficult for a buyer to
get a mortgage to buy that flat, significantly impacting the selling price of
the flat. Leaseholders can extend the time period on the Lease. There is a cost
to this which can be determined by a tribunal, with the Leaseholder paying for
the Freeholders legal costs as well as their own. The cost of extending a Lease
increases as the years left reduces, especially when it falls under 80 years.
Leaseholders will need to pay the Freeholder rent each year.
This is rent for the land the flat is built on. Older Leases may state that the
ground rent is for example £30 a year until the end of the Lease. However,
newer Leases can be far more costly to the Leaseholder and the amounts increase
over the length of the Lease. It’s important you understand any increases that
are detailed in the Lease. There are some Leases out there that double every 10
years. This may not be an issue when you first buy the flat and perhaps not an
issue for the first 10, 20 or even 30 years. If the ground rent is £500 for the
first 10 years, after 80 years it could be £128,000 per annum. You might not be
around then, but it will significantly impact the resale value of the property
in the near, as well as distant, future.
Some Leases will state that pets are not allowed to reside
on the property. If you have pets and this is not brought to your attention
until after the sale when someone complains about you having a dog or cat or
gerbil in your flat, you’ll find yourself in an unfortunate dilemma. Either the
pet goes or the flat goes. It’s that simple as the Lease is legally binding.
Here’s an example of what a Lease could detail on the ownership of pets: ‘Not to keep or permit any bird, dog or other
animal upon or in the demised premises which may cause a nuisance, damage or
annoyance to the tenants or occupiers of any other part of the building or to
which an objection shall be notified by the Company.’
Renting your flat
Don’t assume that you are allowed to rent your flat to
others. As a Leaseholder you are considered a tenant and by renting the flat to
someone else you are sub-letting the property. Even though you own a flat and there
may be conditions in the Lease around sub-letting. Some Leases will not even
allow it. Others will insist on an annual administration fee to the Freeholder
for it to be allowed. There may also be conditions around how long the contract
must be between you and your tenant. If you are a Landlord or are thinking of
becoming a Landlord through buying a flat, check the Lease to see if you are
acting within the terms.
The Lease will state that the Leaseholder must contribute to
the upkeep and running costs of the communal parts of the building, usually
either 6 monthly or yearly by a specified date. The amount will usually not be detailed
but will state that a reasonable amount will be charged. The Freeholder or Landlord
will usually pass the collection of services charges and maintenance of the
building to a management company. They will determine what is reasonable.
However, you can challenge this amount via tribunal. Leaseholders can also take
it a step further and take over the management themselves via a Right to Manage
process. It is important though that Leaseholders pay their service charge as
the Lease will usually allow for additional charges to be added upon non-payment
and late payment. It may also allow for the Freeholder to take the Leasehold
flat back, resulting in the Leaseholder losing their property.
Restrictions you may not Expect
As the Leaseholder you have agreed not to carry out a host
of activities related to the building. These are put in the Lease in good faith
to avoid confusion and help resolve disputes between neighbours. There will be
obvious restrictions in there such as no loud music to be played, no rubbish to
be left in the corridor, no satellite dishes to be installed on the side of the
building, no smoking in communal areas. There may be other restrictions that
you may not be expecting such as no vehicles to be left in the car park with
commercial writing on them, no door mats to be left outside your door, no
washing to be left to dry in the garden. Here’s an example: ‘No clothes or other articles shall be hung
exposed or shaken outside the premises or in the reserved parts; No clothes or
other articles shall be hung in the premises except curtains or good and
reasonable colour and quality.’
Buying and owning a flat comes with responsibility and conditions, more than you may initially think. It’s really important to understand the Lease, it’s a legally binding and enforceable agreement a flat owner enters into when purchasing the property. The wording in Leases is not always an easy read and can be lengthy but don’t let this put you off. Don’t rely on the estate agent or your solicitor to summarise for you. Read it yourself so you are fully informed. Make sure it is fair and suits you. The devil is in the detail.
Gerry Purcell is our Right to Manage Expert and Managing Director of Purco Limited