What is a leasehold property?

A leasehold is one of the most common types of properties found within the United Kingdom.  The main takeaway point here is that with a leasehold, you do not physically own the land that the property is located upon.  Individuals will instead rent  the property in question for a number of years or even decades.  Leaseholds are generally considered to represent long-term contracts between the tenant and the owner (often referred to as the landlord to avoid complicated nomenclature). 

What are the Differences Between a Leasehold and a Freehold Property?

There are several key differences between a leasehold and a freehold property. As the Homeowner’s Alliance highlights, here are some of the most common:

  • Freeholders hold an “absolute title” over the property in question.
  • Freeholders are likewise responsible for maintenance and upkeep.
  • Leaseholders are normally not subject to the same maintenance responsibilities as freeholders (depending upon the type of contract).
  • Leaseholders are often obliged to pay an annual fee to the owner known as “ground rent”.
  • Leaseholders are obliged to obtain permission from the owner in the event that they wish to carry out extensive work on the property.
  • Other restrictions such as the ability to have pets or to sublet may be restricted to leaseholders.

It is also interesting to note the relative proportions between different types of properties.  According to the Ministry for Housing, 4.3 million homes throughout England are leasehold properties.  Out of these, 69 per cent are flats while 31 per cent represent standalone houses.  It is therefore clear to see that leaseholds are often appealing to buyers.  Let’s now take a look at some of their unique advantages.

What are the Benefits and Possible Drawbacks of a Leasehold Property?

One of the reasons why leaseholds are considered to be popular options involves the fact that they tend to be relatively cheaper when compared to freehold options.  Having said this, there are a handful of additional characteristics to consider:

  • These options are often ideal for anyone who requires short-term accommodation.
  • Leaseholders are normally not responsible for any major repairs (such as if a roof needs to be replaced after a severe storm).
  • The property could also be purchased in the future via schemes such as enfranchisement.<

Still, it is just as important to highlight a handful of potential drawbacks.  Here are some possible issues:

  • The landlord is not obliged to grant a lease renewal once it has expired.
  • Certain usage limitations may apply.
  • Shorter leases may not be considered to represent sufficient collateral if you happen to be applying for a loan.
  • Service charges may vary depending upon the landlord.

So, it is clear to see that leaseholds are associated with a handful of unique conditions which need to be examined well in advance.

What Should You Take Into Account when Considering a Leasehold?

It can be argued that the most important variable involves the amount of time allotted before the lease runs out (depending upon its entire duration).  This can easily be determined by speaking with the owner and carefully reading the terms and conditions.

Furthermore, leases of a shorter length can sometimes make it more difficult to sell the property in the future (leases with decades left are not always appealing to buyers, as they can have difficulty being approved for a mortgage).

It is also wise to closely examine any applicable service charges that are associated with the lease. What are your responsibilities as the leaseholder and what financial obligations are you under?  Excessive service charges can quickly eat into a limited budget. If these variables are not made adequately clear, it is always best to look elsewhere.

These are some of the main variables to take into account when examining the potential associated with a leasehold property.  If you would like to learn more or should you have additional questions, one of our representatives is always standing by.