Should I be wary of buying a leasehold house?
While you expect a flat to be leasehold, there is now also a trend for developers to sell new build houses as leasehold. Here is what you need to know.
What does leasehold mean?
When you buy a leasehold property, you do not own the land on which it stands. The land is owned by a freeholder .
Freeholders are often referred to as landlord when there is no managing agent looking after the property.
A lease is in effect a long term rental agreement which allows you to use the property for a stated number of years.
Typically lease terms range from 40 years to 999 years.
Generally, the shorter the lease, the less saleable the property.
A lease will also set out any ground rent and service charges as well as any restrictions over how the property is used.
In the case of a leasehold house this might mean:
- Maintenance fees and annual service charges for any green areas or driveways you share with neighbours whose houses are built on the same patch of land.
- Ground rent
- The freeholder may not allow you to extend your property, carry out any major renovation works or sublet.
The controversy of leasehold houses
Many experts argue that there is no valid reason for a developer to retain the freehold of a house. It is argued that leasehold houses are conceived purely for then developers financial benefit and at the expense of the leaseholder.
Spiralling ground rents
The issue of spiralling ground rent is the main concern, depending on the terms of the lease.
Some house leases stipulate that the ground rent will double every ten years. As time progresses, this clause can make ground rent prohibitively expensive, making the property difficult to sell on. This can also make it difficult to obtain a mortgage on the property.
Along with the potential restrictions in developing the property and the various fees payable to the freeholder, you must be very clear on what you are entering into before you buy.
The main types of ground rent schedules
- Ground rent that doubles every ten years - this is generally considered one to avoid.
- Ground rent that doubles every 25 years - this is considered more acceptable.
- Ground rent that is linked to RPI (Retail Prices Index) - this is ground rent that is in line with inflation, and is generally viewed as the most fair.
I bought my house without knowing it was leasehold
Leasehold properties account for approximately 25% of residential homes in the UK.
Leasehold houses, although comparatively rare (when compared to flats) have become more common in recent years. The Department for Communities and Local Government (DCLG) estimates the number to be between 1.4m and 2.9m - considerably more than previously thought.
Nevertheless leasehold houses are a relatively new thing and as such, have caught out conveyancing solicitors who have assumed the properties to be freehold.
In this scenario you could have a case for suing your conveyancer for professional negligence, as it is their job to warn you of any potential pitfalls of a property before you buy it. If you purchased a new build and your conveyancer was recommended by the developer, there could also be a case for a conflict of interest.
In order to prove your case, you will need to request a copy of the file created by your solicitor when you purchased your home. Once you have this, look at the ‘Report on title’, which is a document in which the pluses and minuses of buying the house are detailed.
If your solicitor failed to explain the leasehold issues and offer you advice as to whether there could be issues for you as a buyer, you could have a case for suing.
So should I be wary?
If you are thinking of buying a leasehold house…
- How long is left on the lease? If it is 80 years or under, the property is less desirable and you may have difficulty getting a mortgage. See: Should I buy a property with a short lease?
- How much is the ground rent, and will it increase over time?
- What service charges would you have to pay?
- You can contact the Land Registry to find out who the freeholder is of any leasehold property you are looking to buy.