In both England and Wales, the two primary types of property ownership are leasehold and freehold. The difference between both, in shorter terms, is all down to who owns the land on which the property is built.
What is the Difference Between a Leasehold Property and a Freehold Property?
When you buy a freehold property, you will own the property outright, including all of the land that it is built on. The good thing about buying a freehold property is that you fully own the house and can make all decisions on what you do to it. However, one downfall is that you will be responsible for paying the full amount, should any upkeep be required.
If the property has been bought by tenants in common, then a declaration of trust may be required. This outlines how much of the property each person owns and therefore what percentage each person should pay towards maintenance.
A leasehold property, however, means that while you do own the property, you only have the right to own it for a certain amount of time. The lease is usually 99-125 years, although it can go up to 999. This is defined in the contract. It may be harder to sell a leasehold property with less than 80 years left on the lease, as mortgage companies will be reluctant to finance a home near the end of the lease.
Also, the land that the property is on, isn’t owned by you, just the property itself. Apartments and flats are usually leasehold, as it means that while you own the flat/apartment that you’re living in, you don’t own the overall building, the land that it is on or the communal areas.
The Costs Behind Buying a Leasehold Property
Unlike a freehold property, you won’t be required to pay for the maintenance or running of the property, or the land that it is on. The landlord or freeholder would have either appointed a managing agent or they will do it themselves.
The cost of this, is usually shared by the leaseholders who may be asked to pay into a ‘sinking fund’ in order to cover any maintenance that might be needed in the future.
For example, if you’re in a block of flats, then these charges will be used to pay towards the upkeep of communal gardens, paying a cleaner to service the hallways, and window cleaners to keep the glass clear and smudge free.
You should be aware at the beginning of your contract that you’ll be required to pay into the ‘sinking fund’. However, your solicitor will confirm this with you, as it may affect your accountability.
Challenging Service Charges
Of course, you may want to see exactly where the money that you’re putting in is being spent to stop your landlord taking advantage of you financially.
You can ask to see:
- A summary of where your money is going.
- How costs are all calculated.
- Supporting paperwork – receipts and invoices.
The landlord must also consult all leaseholders when:
- Completing one-off building work that exceeds £250.
- Completing work that will last over a year.
- Completing any work that will exceed £100 per year.
Anyone that is unhappy with these changes would be able to challenge them through a LVT, otherwise known as a Leasehold Valuation Tribunal.
Why Does Buying a Leasehold Property Cost More in Conveyancing Fees?
Your residential conveyancing solicitors will carefully view the terms of the lease to see if there are any restrictions that may limit what you do in the property, or the way that you use it. They will let you know about restrictions, just in case you did want to argue these.
If you’re planning on purchasing a flat or apartment, then make sure that you’re fully aware of how the building is managed. In addition to the normal property information form and the fittings and contents form, the seller’s solicitors will provide replies to the enquires which will include the provision of a management/sales pack from their client’s landlord or managing agents.
The reason that this costs more in conveyancing fees is because all of the above can be extremely time consuming: reading through a sales pack, raising concerns to the leaseholder, reporting these concerns back to you and spending more time reading through the leasehold and freehold title documents.