What is a Lease and am I a Leaseholder?
If you have a Lease for your property then you are commonly referred to as a Leaseholder. This doesn’t mean that you don’t own your property which is of course the case, but strictly speaking, you have bought a Lease that allows you to stay in the property for the term specified in the lease, often by paying Ground Rent to the Landlord or Freeholder.
When you sell the property, you transfer the Lease to the next owner. A lease is a document that can be both complex and easy to understand. When buying a property that has a Lease, it’s important that your solicitor explains what it contains and any promises (referred to as Covenants) that you are required to keep as well as any permissions that you may need to seek
Common examples are that you promise (via a Covenant) to redecorate the inside of your property every 5 years or that you will clean the inside of your windows no less than once a month. An example of permission that you might have to seek is for approval to have pets in your property or if you want to make alterations to the layout inside your apartment. There is no hard and fast rule for Leases making it even more important that your solicitor makes you aware of what it contains and how it will affect you.
What is a Lease extension and what benefit, if any, is it to me?
Lease terms vary from the start of their inception; some are 99 years whilst others are 999 years! If you’re in a position where your Lease is nearing just 75 years left to run, then it is recommended to seek professional advice from a Solicitor with a view to extending it. The general rule of thumb is that the lesser length of time on your Lease, the more costly it is to extend. It can also significantly impact your ability to obtain a mortgage over the property if the mortgage lender deems the remaining term insufficient.
When you have owned your leasehold property for 2 years, you are legally entitled to approach the Freeholder or Landlord with a view to extending it, something at this point that they must begin negotiating on. There will be a cost in extending the Lease which is payable to the Freeholder and there will be associated costs for having a solicitor organise and negotiate for you.
Ultimately the longer you have on your Lease, the more appealing it is to buyers when you come to sell. So if you aren’t sure about the length on your Lease, have a look for the document (which you should have been given when you bought the property) or speak to the solicitor that dealt with the purchase.
Purchasing the Freehold, is this something that we should consider?
If you are a Leaseholder, then it is highly likely that you pay ground Rent to a Freeholder. This is sometimes what is referred to as a “peppercorn” whereby it will be a minute sum, or the Ground Rent could be a larger sum that you pay, usually on an Annual basis. Some leaseholders form a group with a view to buying the Freehold, otherwise known as Collective Enfranchisement. There are some requirements that must be met in order to proceed on this basis, such as at least half of the Leaseholders in the building(s) proceeding with this, whilst also being “Long Lease Holders”- this is when the Lease had more than 21 years left to run when you bought your property.
There are a number of other qualifying criteria as to whether you can look at purchasing the Freehold and advice is available via LEASE (the Leasehold Advisory Service) or via a solicitor. If the criteria are met, then it is strongly recommended to appoint a solicitor to act on your behalf. They can help organise a surveyor who uses a formula to recommend a sum for the purchase of the Freehold, after which the solicitor makes contact with the Freeholder and puts forward the proposal.
The Freeholder has two months to either accept the offer or to offer a counter notice. If an agreement can’t be reached then there is a 4 month period where negotiations can take place, after which if nothing has been agreed then the decision on the purchase sum goes to the First Tier Tribunal of the Property Chamber Leaseholders choose to go through this process for a number of reasons. Two common ones are that in some cases, the Freeholder has the responsibility to organise the Buildings Insurance or there will be a Covenant in the Lease stating that Ground Rents increase after a certain period of time, the latter may put off buyers when you come to sell the property. Whilst not entirely detrimental, many leaseholders like to be in a position to control such covenants.
The above is an article written for the benefit of Leaseholders however should not be taken as legal advice, this should always be sought in matters such as Leases and the purchase of a Freehold.
Omnia Estates is an ARMA accredited property management division that works with private landlords, developers, lessees, management companies and freeholders across a mix of conversion, new build, and listed properties across the UK.
