Why is there a difference between leasehold and freehold in the UK? And how does the leasehold work?
I never head about leaseholds before moving to the UK. If you buy a property on leasehold, when does the price start falling, so that the investment is anti-economical?
What are the origins of leasehold?
And what are you bound to?
Asked on Feb 10 2011,
General in London |
Freehold is the ownership of land/ buildings in perpetuity opposed to a leasehold where the property reverts to the Freeholder when lease expires. Leases often contain covenants ie the tenant agrees to/ not to do something eg to pay the rent, cut the grass, not to be a nuisance - the landlord may also enter into covenants. Leases may offer statutory protection to tenants eg residential long leases at low ground rents and even the opportunity to enfranchise ie purchase the freehold. Precise covenants vary from lease to lease.
Leases are useful eg when selling off flats within a block so management of communal services is provided for.
As you rightly point out leases are wasting assets and when valued a sinking fund should be applied. Valuation especially of leasehold property requires not merely an understandong of the land/ building itself and local market but also of the lease and any implied terms etc. Thus you should consult a professional Chartered Valuation Surveyor.
Answered on Feb 10 2011,
A leasehold is when a property shares the same piece of land as other leaseholds, the freehold has its own land to sit on. Normally the difference between a flat and a house, though there are exceptions.
Hoping not to confuse you, the piece of land the leaseholder(s) sit on has to be owned too, and this is by a freeholder of a different type. That is, he ultimately owns the property containing the leasehold(s) and the land it/they sit(s) on.
There are other types of freeholds and leaseholds too that tend to be purely commercial and not residential as above. Let me know if I have confused you completely!
The laws on leasehold and freehold properties are so hold they're almost funny - unless you're affected by them - but all these laws are changing slowly. The Leasehold Advisory Service, for example, can tell you more (online).
As a parallel, think of a street market owned by, for example, by a local council, but with stalls owned by market traders who are only allowed to be there for the time period they are allotted or pay for; yet the land they sit on and a lot of their rights still belong to the local council, the freeholder of the land. avalassia
Answered on Feb 11 2011,
The concept of leasehold has always been an issue for overseas buyers as well as many natives. It can seem that you are buying a property without really owning it.
One way of looking at a lease is that it is a series of rights and obligations that are designed to protect the common good of all occupants in a building. The rights you benefit from are rights of access, perhaps use of communal areas and grounds and of course the right to occupy the property itself. The obligations could include contributing to the upkeep and decoration of the building, a common insurance policy or to not bother neighbours by the prohibition of certain things eg running a business from the flat or keeping a large pet without prior permission of the freeholder. Without these obligations in the lease, an owner of a flat may become a nuisance to their neighbours and devalue the whole building.
The value of a lease will decline very slightly in the first few years but the decline will pick up pace from about 80 years and under and will really fall once mortgage finance becomes very hard to obtain which will be about 60 years and below. You do have the right to extend a lease once you have owned the property for two years so it isn’t necessarily uneconomical, but the key is to pay an appropriate price at the outset. Get a Homebuyers survey done when you buy the property and the surveyor will give their view of the value as well as the condition of the property.
Answered on Feb 16 2011,
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