Ten things you need to know about... leasehold and freehold propertiesPaula Hawkins
How to buy the freehold to your flat or extend your lease ¦ Property Guides on Times Online
1. The laws governing property ownership in England and Wales date back to the Middle Ages, and as a result, throw up some peculiar anachronisms such as the leasehold system.
2. Most flats in England and Wales are purchased on a leasehold basis. This means that you do not own the property outright; instead you purchase the right to live there for a specified period, typically for 99 to 125 years, although some leases run for 999 years.
3. Once a lease has expired, ownership of the property reverts to the freeholder, but the tenant is permitted to stay in the property, paying a market rent.
4. There are more than two million leaseholders in England and Wales.
5. One of the major disadvantages of owning a leasehold property is that leases run down: under normal circumstances it is difficult to get a mortgage for a property that has fewer than 50 years to run on its lease. It is possible to purchase leasehold extensions, however, or in some cases to purchase a share of the freehold.
6. Short lease properties are common in the most expensive parts of central London, where you can get discounts of as much as 50 per cent on the purchase price of a flat if it has fewer than 40 years to run on its lease.
7. Most houses are purchased on a freehold basis, which means that you own them outright, although leasehold houses are common in some areas of the country. If you own the freehold, you are fully responsible for the maintenance of the property.
8. Since 2004, there has been a third form of property ownership, known as commonhold, which applies to new developments of flats. Under commonhold, each flat owner has a freehold stake in the building.
9. Leaseholders are required to pay ground rent (which is usually nominal), as well as service charges (which are not). These are payable to the freeholder or to an intermediary, known as a managing agent, who looks after the property on the freeholder’s behalf. Service charges include the costs of maintenance, repairs and buildings insurance, and may also include things like lifts, lighting, cleaning and gardening.
10. At present, the landlord is under no legal obligation to issue tenants with itemised service charge statements; however, this is due to change this year when new proposals designed to increase transparency over how landlords spend leaseholders’ cash come into force.
Absent landlord: defined as a landlord who cannot be contacted. If you have an absentee landlord, you can take legal action to acquire the right to manage your property.
Marriage value: this represents the increase in the value of a flat following the purchase of share of freehold or of an extension to the lease.
Peppercorn rent: this is a basic nominal rent which the freeholder charges the leaseholder
Right to Manage: the right of the leaseholders to take over the management of their property from the freeholder or managing agent.
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