Why Would Anyone Buy A Leasehold Property?

mariam-abu-hussein
Mariam Abu HusseinLegal Assessment Specialist @ Lawhive
Updated on 14th November 2023

Why would anyone buy a leasehold property?

It's a fair question. And it's one we're going to tackle head-on in this article.

why-buy-leasehold-property

From the basics of what a leasehold property actually is to why some people find them appealing, we'll explore the ins and outs and get to the bottom of the question.

Leasehold Properties Explained

Leasehold properties are quite common in the UK. In fact, according to the Department for Levelling Up, Housing and Communities, there are around 4.86 million leasehold homes in England, the majority of them flats, and in 2019 22% of residential property transactions in England and Wales were leasehold.

What is a leasehold property?

When you buy a leasehold property, you're not buying the land it sits on. Instead, you're purchasing the lease and the property itself for a set number of years (lease term). The actual land, also known as the freehold, is owned by someone else - the freeholder.

In some ways, owning a leasehold property is like renting, but for a much longer time (most leases last more than 99 years!) and with more say in how you use the place.

So, what’s the problem with leasehold?

Let's return to the question: Why on earth would anyone buy a leasehold property?

The reason why many people ask this question is that there have been more than a few problems over the years related to leasehold ownership like:

  • High services charges

  • Lack of transparency over charges

  • Freeholders blocking leaseholders attempts to exercise Right to Manage

  • Excessive admin charges

  • High costs for applications to extend lease agreements

While some progress has been made to give leaseholders more power and rights over the years (such as the Leasehold Reform (Ground Rent) Act 2022 which did away with ground rent for new leases), many still encounter problems like the ones above, which can be off putting for someone looking to buy a property.

That being said, the statistics show that people do still buy leasehold properties. Let’s take a look at some of the reasons why that might be…

Why Buy a Leasehold Property?

The reasons why someone would choose to buy a leasehold property varies. In our extensive experience, here are just a few to consider:

Getting On The Property Ladder

For those who dream of buying their own place but find the price tag on freehold properties a bit high, leasehold properties offer an alternative solution. Because they are more commonly flats apartments, they are often cheaper upfront than freehold properties with lower associated costs too, like Land Registry fees and Stamp Duty.

Some leasehold properties also offer shared ownership lease opportunities. This means a leaseholder can purchase a share of a property and then pay rent on the part of the property still owned by the landlord. As time goes by the leaseholder can buy additional shares in the property until they own the whole of it.

Both of these options could be a game-changer for first-time buyers or those with a tighter budget who are struggling to buy.

Location, Location, Location

Leasehold properties often pop up in prime locations like cities or historic town centres. They offer people a chance to live where the action is, close to their work, entertainment, schools, and all the amenities they need. For many, the convenience of location outweighs any concerns they might have about becoming a leaseholder.

Maintenance Help

Owning property comes with many responsibilities and complications. With leasehold, some of these responsibilities, such as maintenance of areas like stairways and gardens, are the responsibility of the freeholder rather than the leaseholder. This can be a huge plus, especially if you're not keen on mowing lawns or fixing roofs! The freeholder also still has responsibility for maintenance of utilities,like water, gas, and electricity supplies.

Smells Like Community Spirit

Living in a leasehold property often means you're part of a community. You might have access to shared spaces like gardens, gyms, co-working spaces, parking facilities or shared lounges. So, sometimes when you buy a leasehold property, you're not just getting a place to live; you're also gaining a share in a community, which is attractive to some.

Rental Opportunities

Property developers tend to favour letting leasehold properties for a number of reasons. The first being that they are cheaper, therefore have bigger potential to earn more in rental income. The second being that the majority of leasehold properties are flats in attractive areas, which appeal to a lot of people looking to rent.

These reasons shed light on why some choose to buy a leasehold property. They offer affordability, location, and a sense of belonging that can make them an attractive choice. But hold on, we're not done yet.Let's tackle those concerns that often pop up when people think about leasehold properties.

Common Leasehold Challenges

Now you know why people buy leasehold properties, let’s have a look at why they might not.

Lease Terms

As we’ve mentioned, when you buy a leasehold property, you're purchasing the lease and the property itself for a set number of years (lease term). The issue with this comes when the lease term has less than 80 years left on it. When this happens a property can lose value and getting a lease term extension becomes more expensive because the freeholder is entitled to Marriage Value.

Leasehold and Freehold Covenants

Most leases contain agreements (covenants) that stop leaseholders from doing certain things with a property, like using it for commercial purposes or even just having a pet.

If you don’t toe the line with these agreements, the freeholder can take legal action against you. This is not a problem for people who buy freehold property as they generally get the final say on what they do with their property and who lives there - including furry friends!

DIY SOS

Some leases say that leaseholders can't make improvements to the property without the consent of the freeholder. In some cases, a lease may prevent any changes whatsoever being made (absolute prohibition). That means you don’t get the freedom to do any kind of renovation work to the property you live in. Instead, you have to get consent, which can take a long time and be frustrating if you’re refused.

Freeholder Fallouts

Disputes between freeholders and leaseholders aren’t uncommon. Sometimes freeholders don’t do what they’re supposed to (like maintaining common areas) or they are difficult to get hold of. In some situations, leaseholders can feel like their service charges are too high in relation to what they are getting, which can cause friction. This can make life very stressful and put people off buying a leasehold property.

Nightmare Neighbours

As a lot of leasehold properties are flats, you’ll often be neighbours with other leaseholders. Lots of leases say that only the freeholder can take legal action against other leaseholders. So if you do find yourself in a neighbour dispute, you might discover that legally there’s nothing you can do about it unless your freeholder is proactive and supportive of your case.

There are no hard and fast rules when it comes to buying a property as to which is the better choice: freehold vs leasehold. Rather, it’s important to weigh up the pros and cons as they relate to your specific situation and make a decision based on that.

And if you’re still unsure…

If you’re still a bit at sea in understanding why anyone would buy a leasehold property or you need specific advice on a leasehold property or law, a property solicitor should be your first point of call. They are well placed to help you understand the ins and outs and can help you with things like leasehold purchase and sales, lease extensions and leasehold disputes.

At Lawhive, we are committed to helping everyone access legal help and advice at affordable prices. If you’re looking for leasehold property advice, we can help you find a leasehold solicitor to help in less than 5 minutes, and give you a fixed-fee quote on your required services.

In most cases, we can also get you set up and working with the best property solicitors on the same day, so you can get the process started, and finished, as quickly as possible. To get started, simply tell us about your case, and we’ll take care of the rest.

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