So you are looking to buy the perfect home to move into or maybe thinking about purchasing a Buy-to-Let property as an investment or even buying a flat in an apartment block.
The topic relating to land tenure will inevitably come up in discussion and it is important to understand what are the key differences between Freehold and Leasehold properties.
How does land tenure impact upon you and the ownership of your property?
Land tenure in its simplest form describes how the land is owned by an individual, who can use the land, for how long and under what conditions. It also sets out the owner’s rights and responsibilities in connection with their holding of the land.
An owner may most likely be the:
- Freeholder who owns the title absolute of the property in perpetuity. That is the land and the immovable structures on it IE. The house; or
- Leaseholder who has the right to use the property for a specified period of time subject to the terms and conditions set out in the lease with the Freeholder
There is a 3rd category known as Commonholders. This is a collective ownership of the Freehold of a property.
For now, we simply want to understand the key differences between a Freehold and Leasehold property.
What is a Freehold property?
When you buy a property Freehold, the ownership of the land and the building upon it is yours until the time comes to sell it. This form of ownership is known as “Title Absolute” or “Fee Simple”. Owners of Freehold properties are responsible for all costs relating to the property EG. repairs and insurance.
What is a Leasehold property?
Most Leasehold properties are flats although, there are many houses in Sheffield and around the UK which are also Leasehold properties. A property bought Leasehold means that you own the building but not the land that it is on and this is set for a number of years. When the lease expires, the property will belong to the landowner (the Freeholder) unless of course, the term of the lease can be extended for a further term. In the case of a flat, you do not own the communal areas of the building EG. stairways, lifts or parking spaces.
It is important to research the annual Ground Rent that you may have to pay to the Freeholder. Ask your Solicitor or Conveyancor to establish how much Ground Rent will rise in the future. In some cases, the factor in which Ground Rent can rise can be significant.
How long are lease terms?
The length of a lease varies from property to property. Some leases can start off between 99 to 150 years and some others can run for as much as 999 years.
Can the length of a lease influence a Bank’s decision to lend money for a mortgage?
Longer term leases are more attractive to prospective buyers especially if they are dependant upon taking out a mortgage to fund the purchase of a property since a Leasehold with a term as high or near to as 999 years is often treated as good as a Freehold.
There is a common misconception that Banks will not lend money on a Leasehold property that has less than 100 years remaining on its term. This is not entirely the case as experience has shown that some lenders may offer a mortgage with a term as low as 75 years. Check with your lending institution or finance broker to see what criteria your lender uses.
Can I extend the term of my lease?
Provided you have owned the property for two years or more and there a less than 80 years remaining on the lease, you have the right to extend the lease.
It is recommended that you consider extending the lease as soon as possible because:
- There may be limitations by how many years the lease can be extended therefore, properties with longer terms are more attractive when they are placed on the market for sale.
- It may be more costly to extend a lease if the remaining term is relatively short.
- The process associated in extending the term can take time which could frustrate the sales process of your home should you decide to sell it. It is therefore ideal if the lease extension has been completed in advance of any house sale.
How much does it cost to extend my lease?
There are various factors that influence the extension costs. These could be factored upon:
- How amount of Ground Rent currently pay including the amount of ground rent that would have had to be paid between now and the end of the lease term
- Improvements that have been made to the property; and
- What the property is worth today
There will be costs associated with the lease extension. These will include:
- Legal fees
- Land Registration fees
- Property Valuation fees
- Stamp Duty (this may apply if the extension costs in excess of £125,000)
Can I buy the Freehold on my property?
In the case of owning a house, buying the Freehold should be relatively straightforward. Provided you have owned the property for 2 years of more, you have the right to buy the Freehold on your property. It is advisable to engage the services of a Solicitor who will lodge this request through a First-Tier Tribunal. The Tribunal establishes the purchase price of the Freehold in the even an agreement cannot be reached with the Freeholder.
Residents in a block of flats would need to buy the Freehold jointly therefore, this process will be more challenging to facilitate.
Need more information?
Whether you are considering buying or selling a property or even renting a flat or house in Sheffield and want to know how a Freehold or Leasehold property affects your ownership of the property, call Nicholas Humphreys (Sheffield – Broomhill & Crookes) on 0114 470 4715 or e-mail email@example.com We will be happy to discuss your individual circumstances and give advice and peace of mind on all real estate matters.
Our office is open 7 days a week from 8am to 8pm.