When looking for a new property using the internet or an estate agent, the word leasehold is likely to appear often in property searches. Many home buyers don’t understand what a leasehold is, how it works, the rights it gives and the responsibilities that it entails.
This is the Mortgages.co.uk guide to leasehold properties.
For those people who are buying, or are considering buying, a leasehold flat or house (flats are more often leasehold than houses), it is essential to know exactly what a leasehold means.
What is a leasehold property?
Leasehold flats and houses may be in situated in purpose-built blocks, converted houses or as part of commercial or retail premises.
Leasehold ownership of a flat fundamentally means a long tenancy - the right to own, occupy and use a flat for a long period known as the 'term' of the lease.
This can be for between 99 - 999 years; and the flat can be bought and sold within that period. There are 'long' leases and 'short' leases, referring to the number of years left on the lease.
From the outset of the lease, the term is fixed, and decreases every year. At the end of the lease, the flat is returned to the owner of the building.
Technically, even whilst a leaseholder owns the lease on a property, the owner of the freehold retains ownership of the external and structural walls, as well as any common parts of the structure. The owner of the building is also responsible for the maintenance and repair of the building.
Leasehold properties may be owned by either individuals or companies, and sometimes by housing associations or local authorities. Often, leaseholders purchase the freehold of the building in which they live by creating a residents’ management company.
What is a lease?
In the eyes of the law, a lease refers to a specific contract that exists between the owner of a property and a leaseholder that provides the latter with conditional ownership for a fixed period of time.
Leases are extremely important documents, and both parties should keep a copy of the agreement and make sure that it is understood. Leases are usually worded in legal jargon which can be hard to understand without taking advice.
Leases lay out in certain terms the contractual obligations of both parties. This will include what the leaseholder has to do, and what the landlord has to do. The lease will set out what the leaseholder’s obligations are, as well as any restrictions and conditions regarding the property. Usually, the landlord is required to maintain and manage the structure of the property, as well the outside and any common areas.
Leaseholders may not be totally free to do what they wish to in or with the leasehold property. The lease itself has its own conditions, to protect the rights of all those with an interest in the building.
When a flat is sold, the seller passes all the rights and responsibilities of the lease to the purchaser, including all future service charges that have not been identified.