What is the difference between Freehold and Leasehold?
What is a long Leasehold contract? (AKA a Lease)
- The landowner or landlord will generally manage and maintain the building subject to receipt of service charge and ground rent payments.
- The leaseholder will agree to keep the property in good order and pay any ongoing payments under the lease, such as service charges and ground rent.
Length & Extension of Lease
- Service Charges – The services charge is a fee that the leaseholder pays to the landlord to cover their share of the cost of maintaining the leasehold property. There will also be a charge for managing the building which can be performed by the landlord or a management company, such as cleaning and gardening. These charges will vary depending on the terms of the lease.
- Ground Rent – The ground rent is a fee that the leaseholder must pay to the freeholder, to rent the land upon which the leaseholder’s property stands, if required by clauses in the lease. Top tip – it is important that you are aware of these payments and understand how they may be increased in the future as it may make lenders less likely to provide mortgages.
- Sinking Fund – This is a fund set up to cover major works or emergencies such as roof repairs or replacing the communal boilers. Having a fund in place ensures that the cost of major but infrequent repairs are paid for equally by all generations of residents, rather than leaving large expenses to be footed by future occupants. This figure will be stipulated in your lease agreement and your solicitor should advise you on this when you first purchase your property.
- Other Charges – A leaseholder may also have to pay the freeholder administration charges in certain circumstances to cover the cost of granting approval (usually referred to as a permission fee) or to supply documents such as providing a management pack. You might also have to pay for a ‘notice of transfer’ (payable for adding a new owner).
Share of Freehold
Top 10 things to consider when buying a leasehold property:
- The number of years remaining on the lease term.
- The annual ground rent, whether it increases, the frequency of the increase and the method of the increase.
- The current service charge and what this covers.
- Whether any major works have been recently completed or are anticipated for which you may be asked to pay towards.
- Whether there are any restrictions on how you use the property or charges for certain activities.
- Whether there are requirements for gaining permission, for example, to sublet or alter the property, and whether fees will be charged for doing so.
- Whether ground rent payments are up to date and who collects them.
- Who the freeholder is and if there is one, which managing agent do they use for the property.
- Which insurance company will insure the building and what is the annual insurance amount. This may be addressed in the service charges information.
- Whether the freeholder has agreed to or intends to, sell the freehold (especially for new build properties).