A positive move on Leasehold Properties

Smith Partnership Solicitors, one of the largest firms of solicitors in the East Midlands, looks at the recent Government proposal that Leasehold tenure on new-build properties may be banned, which has been the focus of news headlines this week. 

Leasehold vs Freehold

There are two types of legal ownership of a property that you can purchase, these are freehold and leasehold.

If you are purchasing a property with freehold tenure then you own the building and the land that it stands on outright. You are known as the freeholder of that property.

If you are purchasing a leasehold property then you have a lease from the freeholder to use the property for a term of years. You are required to pay ground rent to the freeholder for the use of the property on a yearly basis and there may be other service charges payable for any common areas.

Leasehold ownership is commonly used when purchasing an apartment as it would not be physically possible for you to purchase a third floor apartment, for instance, and own the land that this was built on as well. In these circumstances it is necessary for properties to have leasehold tenure.

It has however recently been reported that house builders have sold properties to their customers under unfair leasehold terms. House builders have even sold houses with leasehold ownership rather than freehold for no apparent reason.

The unfair terms of the leasehold agreements which have been encountered are in relation to ground rent on the properties. As the leaseholder is required to pay ground rent to the freeholder, it is important that the ground rent is not at a level which would affect the value of the property in the future. In some instances, the ground rent started at a respectable figure of around £300 per annum, but the terms of the lease stated that the ground rent would then double every few years. The result of this is that the ground rent would eventually spiral to a level which was not financially viable for the property value itself. The upshot of this is that when these properties have been resold, it has come to light that mortgage lenders will not lend against these terms and therefore the property becomes unmortgageable and cannot be sold.

Whilst housebuilding companies have set monies aside to try and resolve these issues, it is no surprise that the Government are now considering implementing a ban on new-build properties being sold with leasehold tenure. There are of course instances where leasehold tenure for houses are necessary, such as when the land where the property is situated is owned by the National Trust, but this is very rare. 

Emily Hampson, Conveyancer at Smith Partnership says “This is a positive move from the Government which will protect homeowners in the future. However, it is always important that whenever a leasehold property is being purchased, the terms of the lease are reviewed by a legal professional in detail. There are many factors of a lease which can affect the value of a property, including the repairs provisions, ground rent and remaining term of the lease, and these will generally only come to light during the legal process.”

The conveyancing team at Smith Partnership knows that buying a property is an expensive and stressful experience, therefore the efficiency and thoroughness of conveyancing is of paramount importance.  The purpose of a conveyancer is to ensure that purchasers end up with a property that has no unknown restrictions and will sell without difficulty when the time comes, this is especially important when purchasing a Leasehold property. 

If you would like discuss the issues raised in this article, or any other matter, please contact Emily Hampson on 0330 123 1229 or email Emily.hampson@smithpartnership.co.uk.