Buying a Leasehold property in the UK

All properties in England and Wales are either freehold or leasehold. If you buy a freehold property you own the property and the land it sits on, whereas if you are a leaseholder, you’ll have to pay an annual charge, known as ground rent, to the freeholder who is the legal owner of the land on which the building in located. Freeholders are sometimes referred to as ‘landlords’ or ‘lessors’ instead leaseholders can also be called ‘tenants’ or ‘lessees’.

But what is actually the lease? It is a legal contract between the freeholder and the leaseholder. It explains the rights and responsibilities both leaseholder and the freeholder have. In particular, the lease gives you the right to live in your home for a certain amount of time and the ownership of the property is limited to that set period. The majority of leases are granted for 99 years, but they might also be as long as 999 years. You can possibly extend the lease, but this can be expensive. When the lease expires, ownership of the property reverts back to the freeholder. In London, approximately all flats are leasehold.

What expenses do leaseholders have? If you buy a leasehold property, you will be paying extra on-going expenses and those charges will vary from one property to another and can be expensive.

As a leaseholder you may have to pay:

• ground rent for the land on which the property is built
• service charges for maintenance, minor repairs and cleaning
• pay a proportion of building insurance
• contribution for major repairs.

The good news is that some of the leaseholder’s expenses, such as ground rent, repairs and building insurance can be offset against rental income, resulting in a tax saving. It is also worth noting that legal and professional fees in relation to a lease renewal of less than 50 years, may be allowable expenses too, with the exception of situations where a premium is paid on a lease. You should contact professional property tax advisors, such as Rita4Rent to find out which expenses are allowable against your rental income.

The law relating to a leasehold property can be very complicated and it needs to be to be exanimated carefully by a solicitor or conveyancer as part of the legal preparation involved in buying. You also need to make sure there are no unreasonable conditions about how you use the property.

Problems with the lease and possible dispute about repairs between seller and other leaseholders and/or the freeholder should be sorted out before contracts are exchanged. This might cause delays but it is usually much easier than dealing with the problems after you move into your leasehold property.