Certus Mortgage Solutions: A Guide to Leaseholds

Almost 3m people own property on leasehold basis, whereby they own the right to occupy the property, but not the building itself. All leaseholders have the legal right to get together with their neighbours and buy out the landlord.

What does being a leaseholder actually mean?

Leaseholders own and are responsible for the maintenance of everything, within a property’s four wall, including floorboards and plasterwork, but not usually the external or structural walls. The lease should list the rights and responsibilities of the leaseholder and those of the freeholder. It is quite common for leaseholders to have to get the freeholders’ +consent before they can extend the property or change the fencing for example.

How important is it to stick by the rules of the lease.

If you break the terms of the lease you could lose your home or have to pay compensation. The freeholder must give you written notice and time to put thins right before he can go to court to enforce this. Similarly, a leaseholder can take legal action against the freeholder if the terms of the lease are broken, for example if the common parts of the property are not maintained.

What are my rights as a leaseholder?

If you buy leasehold flat, your lease will usually spell out the freeholder’s responsibility to maintain and insure the outside and common parts of the whole building. If they or their managing agents don’t do this, you may be able to take legal action to get compensation or to have repairs done. As a leaseholder, you will pay a service charge for repairs.

How much is the service charge likely to be?

It can vary from just a few hundred pounds to thousands of pounds annually. The lease should say how the service charge is worked out, what it covers and how it is divided between the leaseholders. You may also have to pay a fixed sum into a reserve or “sinking” fund each year to cover major repairs, such as replacing the roof.

Is there anything that can go wrong?

You should check exactly what the service chargers covers because you may find you’re being charged for things not listed in the lease. The other problem you could have is if the lease does not actually say who is responsible for particular repairs.

What can I do if this happens?

You should try and sort out the problem with the freeholder first. If that doe not work, you may need to take legal acting. You can apply to a leasehold valuation tribunal to deal with certain problems such as an unreasonable service charge, if you are unhappy with the cost of buildings insurance or you want to replace the manager of the block of flats.

What happens if the length of the lease is getting short?

If you own the leasehold on a flat, you have the right to renew it for a further 90 years, as long as long as you have been a long leaseholder (which means the lease has 21 years or more to run) for at least two years. You will have to pay a new lease and freeholder’s costs. You can talk to the Leasehold Advisory Service at www.lease-advice.org for advice.

Is it possible to buy the freehold?

If you are a leaseholder, or you are buying a leasehold property, you may have the right to buy the freehold. This is called “enfranchisement”, particularly if the existing freeholder doesn’t maintain the property properly. It also worth remembering that if you’re in the process of buying a property and you want to buy the freehold then you should set that in motion otherwise you have to wait until you have lived there for two years before applying again.

What does buying the freehold mean?

Buying the freehold means you will either singly or jointly with other freeholders, own the land on which the property is built, plus all the common parts, such as exterior walls, front doors and drains. Freeholders can decide rules on issues pets or unsightly washing lines in the garden are allowed.

How do I do go about buying the freehold?

Anyone can purchase a freehold interest. To buy a freehold jointly under 1993 Leasehold Reform Act, buyers must satisfy certain criteria regarding the length of time lived in the property and the number of leaseholders who want to buy the freehold.

Once you have enough participating owners, you should serve a formal notice on the freeholder, saying how much you are willing to pay.

How much does this cost?

This will vary hugely depending on many factors, such a how long the lease has left to run and how much ground rent you have to pay. As well as the price the freehold and the cost’s the landlord’s costs you may also need to pay a share of the “marriage value” if the lease is less then 80 years. This is the increases in value from joining the leasehold and freehold interests.

Is it worth it?

Almost certainly, if you buy a freehold at the right price. Most people say buying a share in the freehold enhances the value of your property when time comes to sell it