What does 'Leasehold' mean when buying a property?
Find out what Leasehold means when you are buying a property. 'What does Leasehold mean?' plus over 150 other property related terms and jargon in plain English
Leasehold
Flats or houses can be leasehold, but what does this mean?
The best way to describe leasehold is with an example.
Let's say I've built a block of eight flats. I own the land and I own the building, both of which I don't want to sell outright.
Instead I say "You can live in one of the flats for the next 99 years for a one off payment of £X;". I put together a document known as "the lease" which lays out your rights and obligations.
Some Jargon here:
- Leasehold - that's what this flat now is - you hold it because of the lease.
- "Lease Length" - in this example 99 years.
- "Lease Value" - in this example £X
- "Lease Extension" - you can add more years to the lease length (for a price) at any point after purchasing the lease.
- leaseholder - that's what you are if you accept my offer (or I accept your counter offer!).
- freeholder - that's the term given to me, the party that still owns the building and land.
Your rights will be much stronger than those of a tenant renting with monthly payments. You'll have to be an absolute nightmare (usually to your neighbours) or breached the lease fundamentally in some other way for me to persuade a court you have breached your lease and take the flat back.
Your solicitor should check the lease carefully and make you aware of anything strange, especially in terms of your obligations but I would recommend you give it a read yourself even if it is dull as dishwater. One of my leasehold properties says "I cannot hang my laundry to dry in the garden or within site of the windows"!
More common might be restrictions on pets or your rights to rent it out so watch out - every lease can hide nasty surprises!
The Leasehold Service Charge
Now I said "You can live in one of the flats for the next 99 years for a one off payment of £X;". Its not quite so simple. I still own the bricks and mortar of the building so I'm responsible for some maintenance issues as well as things like lighting in the communal areas, perhaps a lift and a garden.
In the lease I'll specify that you have to pay me an amount every year to handle these sorts of commitments. This is known as the Service Charge. If the block is fairly simple this would probably be a few hundred pounds a year. If there is a gym and swimming pool in the basement, a communal terrace with shrubberies on the roof, a porter at the front door and other such luxuries then the service charge could easily be a few thousand pounds a year.
When you are buying a leasehold your solicitor will ask to see the last three years accounts from the freeholder or their managing agents so you get some idea of annual costs.
Your solicitor will also ask if any major works are planned and, if so, is there money saved for them in the Sink Fund (a savings account for properties) are should you expect a big bill in the near future.
The Leasehold Ground Rent
Now as the Freeholder I haven't quite finished taking cash from you yet. The block of flats sits on some land so I'll also want an annual payment for "Ground Rent".
In most cases this is less than the service charge - between £10 and £250 per year. But watch out. Ground Rent is one place where dubious freeholders really can sting you. Your solicitor should (but often doesn't so make sure you do) check if there are any controls on changes to Ground Rent payments.
Some properties, especially new builds, start with very low Ground Rents that then escalate at well above the rate of inflation. Taylor Wimpey, one of the UKs largest house builders, were caught doing this with a Ground Rent that doubled every ten years. It looked harmless at first but a £250 per year ground rent in year one would become an annual £8,000 ground rent obligation after 50 years!
If you're buying a leasehold property make sure you do it the smart way - pick up a copy of my ebook How to Really Buy a Property.
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How to Really Buy a Property
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Chapter 8:
Buying to Let / For an Investment
"... to put forward.
Remember also that the yield Calculation does not take into account the costs of Ground Rent and Service Charges on leasehold properties. This is often overlooked but a £4,000 annual service charge on the example above reduces its yield by nearly 2%!
When calculating..."
Chapter 9:
Getting on the Property Ladder
"... that you are not looking for your ideal property, you haven't got the deposit so by definition you cannot afford it. You are looking for a stepping stone to your ideal property. If you are also financially stretched, even if someone else would be happy to pay your deposit on that lovely Victorian flat, what happens when the roof needs to be replaced and each leaseholder has to find..."
Chapter 12:
Choosing a Conveyancer or Solicitor
"... deeds (or office copy entries) and starts the local searches
As soon as the sellers questionnaire, fixtures and fittings form and managing agents accounts (in the case of a leasehold purchase) come through he raises enquiries
The local searches come back, perhaps prompting a couple of..."
"... fixed fee offer from a solicitor is another relatively new product. It is usually more expensive than a standard estimated quote but remember that estimated quotes are based on everything going through without a hitch. This is rarely the case, especially with strange leaseholds and various extra legal documents such as deeds of variation can often lead to unexpected costs...."
"... not a serious buyer and pull out of the deal.
A friends recommendation should only be considered if you are also:
Buying a similar property (e.g. a leasehold period flat)
Buying in a similar area
Your friend, for example, may have bought a brand new apartment where the builder has an..."
"... friend, for example, may have bought a brand new apartment where the builder has an experienced legal team that drew up a full set of papers months ago. A solicitor has to be seriously incompetent to cock up that transaction whereas they only need to be mildly incompetent to mess things up with your Victorian leasehold where the freeholder who produced the lease is a bank in Japan or the Earl of..."
"... you are offered.
On a final note be prepared for the fact that not every solicitor will actually want your work. The most successful firms can pick and choose. Some decide, for example, not to handle leasehold work, others not to deal with first time buyers, and so on.
Flowchart for..."
Chapter 14:
Viewing Properties and Making Offers
"... used by agents;
The difference between Chain Free and Vacant Possession;
Why you can't get a mortgage on some properties;
The characteristics of a leasehold property;
What lease lengths affect a properties value;
How lease lengths can be extended;
Why Share of Freehold is not always..."
"... them.
The most frequently used are:
First Time Buyer
Chain Free and Vacant Possession
Tenanted
Cash Purchasers Only
Repossession
leasehold
Share of Freehold
Freehold
- First Time Buyer -
Originally this term arose to mean exactly what it said, "A buyer who has nothing to..."
"... may say they are only prepared to accept offers from buyers able to exchange within two weeks so check these restrictions carefully.
- leasehold -
A property that is leasehold can be bought for a certain number of years. As an example, a leasehold flat might have seventy years left on..."
"... property that is leasehold can be bought for a certain number of years. As an example, a leasehold flat might have seventy years left on the lease. If you buy this property it is on the understanding that you will give it to the freeholder in seventy years time, for free. The freeholder is the ultimate owner of the property. It is important to be aware that a leasehold property is not necessarily a flat or apartment. England and Wales are awash with leasehold houses as..."
"... that a leasehold property is not necessarily a flat or apartment. England and Wales are awash with leasehold houses as well.
The Characteristics of a leasehold are:
Having a Freeholder: When the owner of a building sells off parts of that structure as leaseholds he is saying, "For this..."
"... a Freeholder: When the owner of a building sells off parts of that structure as leaseholds he is saying, "For this amount of money, you may use this part of the building for the next one hundred years. After that time you must give it back to me as I gave it to you." That is the basis of leasehold. The Freehold is a separate entity to the leasehold flats and can be sold with the leaseholders hardly noticing. As such the freeholder at the time you buy a property may be different a week later!..."
"... all the charges to pay and restrictions to adhere to on a leasehold property it is not surprising that many leaseholders decide that they would like to own the freehold of the building in which they live. Under certain conditions they have the right to buy the freehold from the freeholder at a "reasonable" price. It's a lengthy procedure but increasing in popularity, especially as it has a perception of adding value or desirability to a..."
"... buyer should be aware that just because one flat in a building is Share of Freehold, it does not follow that they all are. If you take a building with four flats - A, B, C and D. Flats A, B and C may decide they want to buy the freehold but Flat D wants nothing to do with it. Once A, B and C have successfully purchased the freehold Flat D will still be a leaseholder but will now have to pay charges to the other three flats...."
"... Shares: If you buy a Share of Freehold property you will also be buying shares in the freehold company, 25 Free Street Ltd in the example above. The shares will have been issued when the leaseholders bought out the freeholder. They may have simply split them equally (one third each in the example above) or unequally if there is a difference in floor space between the flats. To demonstrate this Flat A may be the top two floors at 25 Free Street while Flats B and C are only on one floor each. As such Flat A may get 50% of the shares and Flats B and C would get 25% each. While that is very nice for Flat A it would also mean that the owner would be responsible for 50% of the maintenance and repair..."
"... Length and Value: Despite being share of freehold the flats in the above example are still leaseholders. The difference is that they are leaseholders to a freehold company and each one of them owns a share of that company. This means that if the leases are starting to look short on years they can simply agree amongst themselves to grant each other a fifty year extension for say £1 each! As such lease length and value have little connection in a Share of Freehold..."
"... over this are called the Sink Fund and are savings for the unexpected.
Pay for things as they come along.
Hire a managing agent to do it all! (see leasehold above)
Making Changes to the Property: Many people confuse Share of Freehold with total freedom! Someone who owns a share..."
"... Changes to the Property: Many people confuse Share of Freehold with total freedom! Someone who owns a share of freehold is still a leaseholder and must get the permission of the "freeholder" before making any substantial or structural changes to their property. This means agreement from all those in the building who have a percentage stake in the freehold company. As such staying friendly with your neighbours is far more important in a share of freehold situation than if you are a leaseholder! Once again any agreed changes must be spelt out either in a new lease or in a deed of..."
"... that is not insured, its all down to you to find the cash!
Some solicitors see Freehold properties as so much easier to deal with that they actually refuse to handle transactions involving leasehold or share of freehold properties.
- Making an Offer on a Property -
Once you have some..."
Chapter 17:
The Property Buying Process in Theory
"... was a structural part of the property.
The Lease (leasehold and Share of Freehold Only) - This comes from the vendor's solicitor and defines what the freeholder expects from you as a leaseholder. See Chapter 14: Viewing Properties and Making Offers
Service Charge Accounts (leasehold Only) -..."
"... Charge Accounts (leasehold Only) - where you are buying a leasehold property it is important to gain an idea of how much the managing agents charge every year to maintain and run the property. These charges could include lift maintenance, cleaning, lighting, care of a communal garden, even looking after the TV aerial and satellite dish. The most important factor is that these charges are consistent and reasonable with what is being provided. As such your solicitor will ask for at least the last three years accounts to confirm this or spot any trends that you should be aware of. Any debts that the vendor may have with the managing agents are identified here and are extremely important. Service Charge debts are based on the property. If you buy when there are outstanding debts they will become your..."
"... Rent Receipts (leasehold Only) - the ground rent is a charge made by the freeholder. Again the last three years receipts will be sought by your solicitor in order to make sure the premiums are not excessive or rising sharply. Any debts that the vendor may have with the freeholder are identified here and are also extremely important. As with the service charge, ground rent debts are also based on the property. If you buy when there are outstanding debts they will become your..."
"... to Assign (leasehold Only) - for most purchases this is a formality. It is a document from the managing agents or freeholder saying they accept you as the new leaseholder. There are some blocks, however, where you will have to provide character references, proof of your financial status and sometimes even attend for an interview. They are rare and, more often than not, in the upmarket apartments of Mayfair and..."
"... of Variation (leasehold Only) - when a lease needs to be changed the freeholder may decide that writing an entirely new lease is timely and costly. As such they will issue a deed of variation to the lease to confirm that something in the lease is not true or to make an addition to the..."
"... be familiar with when this actually occurred in the area and so asks for documents that do not exist
leasehold only: The managing agents are extremely slow to provide service charge accounts
leasehold only: The managing agents have been changed within the last three years and the previous..."
"... The managing agents are extremely slow to provide service charge accounts
leasehold only: The managing agents have been changed within the last three years and the previous agents are refusing to pass on any documentation.
leasehold only: Your solicitor believes the service charge accounts are..."
"... years and the previous agents are refusing to pass on any documentation.
leasehold only: Your solicitor believes the service charge accounts are not adequate but the managing agent refuses to provide any further information
leasehold only: The vendor owes the managing agents money but is..."
"... to provide any further information
leasehold only: The vendor owes the managing agents money but is refusing to pay it because he is in dispute with them. An example may be that he has withheld the cleaning charge because no cleaning has occurred!
leasehold only: The vendor owes the..."
"... may be that he has withheld the cleaning charge because no cleaning has occurred!
leasehold only: The vendor owes the freeholder money but is refusing to pay it because he is in dispute with them.
leasehold only: The freeholder is absent (has gone missing and no one knows where they..."
"... is in dispute with them.
leasehold only: The freeholder is absent (has gone missing and no one knows where they are!) and so no ground rent payments have been made. Your solicitor may be concerned that he will reappear and want to claim the outstanding debt from you.
leasehold only: Your..."
"... he will reappear and want to claim the outstanding debt from you.
leasehold only: Your solicitor does not think a deed of variation is adequately worded and wants a new one drawn up. The freeholder is offended and refuses to do so
- Requesting Further Enquiries -
With so many pitfalls in..."
"... Approval (where applicable): From the vendor or, if he does not have them, from the local council.
The Lease (leasehold and Share of Freehold only): From the freeholder or freehold company.
Service Charge Accounts (leasehold only): From the managing agents or from the freeholder if he has..."
"... (leasehold and Share of Freehold only): From the freeholder or freehold company.
Service Charge Accounts (leasehold only): From the managing agents or from the freeholder if he has not appointed managing agents.
Ground Rent Receipts (leasehold only): From the freeholder.
License to Assign..."
"... Accounts (leasehold only): From the managing agents or from the freeholder if he has not appointed managing agents.
Ground Rent Receipts (leasehold only): From the freeholder.
License to Assign (leasehold only): From the freeholder.
Deeds of Variation (leasehold and Share of Freehold only,..."
"... the freeholder if he has not appointed managing agents.
Ground Rent Receipts (leasehold only): From the freeholder.
License to Assign (leasehold only): From the freeholder.
Deeds of Variation (leasehold and Share of Freehold only, where applicable): From the freeholder or the freehold..."
"... only): From the freeholder.
License to Assign (leasehold only): From the freeholder.
Deeds of Variation (leasehold and Share of Freehold only, where applicable): From the freeholder or the freehold company.
Share Certificate (Share of Freehold only): From the freehold company.
What Can Go..."
"... be familiar with when this actually occurred in the area and so asks for documents that do not exist
leasehold only: The managing agents are extremely slow to provide service charge accounts
leasehold only: The managing agents have been changed within the last three years and the previous..."
"... The managing agents are extremely slow to provide service charge accounts
leasehold only: The managing agents have been changed within the last three years and the previous agents are refusing to pass on any documentation.
leasehold only: Your solicitor believes the service charge accounts are..."
"... been changed within the last three years and the previous agents are refusing to pass on any documentation.
leasehold only: The freeholder is extremely slow to provide ground rent receipts
leasehold only: The freeholder is absent (has gone missing and no one knows where they are!) and so no..."
"... only: The freeholder is extremely slow to provide ground rent receipts
leasehold only: The freeholder is absent (has gone missing and no one knows where they are!) and so no ground rent payments have been made.
Share of Freehold Only: Some of the parties who own part of the freehold are..."
"... consent or building regulation approval if structural changes or additions have been made to the property
leasehold only: Who the managing agents are and who the freeholder is
Share of Freehold only: The last three years accounts
Share of Freehold only: A share certificate
Details of..."
Chapter 21:
Legal Matters in Property Purchases
"... for the property?
Management Agent Enquiries
If it is a leasehold property are the service charges and ground rents of the level you were lead to believe by the agent and have they all been paid by the current owner?
That really is about it and that is why it is possible..."
Chapter 22:
Why Vendors are Poorly Prepared
"... building regulation certificates (if applicable)
Any guarantees (damp, roof, etc.)
The building insurance details
The local search
If the property is leasehold
The last three years service charge accounts
The last three years ground rent receipts
Any deeds of variation
Optional..."
"... one thing that can help with stress free selling it is to get a survey done on a property before selling.
In the case of a leasehold or Share of Freehold property, a homebuyers survey
In the case of a Freehold property, a structural survey
The reason smart vendors do this is two..."
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Property FAQ
Search Results for 'leasehold' in
Property Terminology
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