When buying a property we are always asked as to the difference between a freehold and a leasehold property. This is especially applicable to first time buyers. In this article we will look at the different types of residential properties you can invest in and potential issues that may arise.
A property can either be a freehold or leasehold.
A freehold property gives you outright ownership of the property and the land on which it stands. There is no third party who will be maintaining the property. Standalone houses are usually freehold. This type of property is usually preferred due to no involvement with a third party.
As freehold type properties are the oldest types usually there are old title deeds referred to in the register which refers to covenants that you must comply with i.e. right of ways granted to third parties over the land which your property is situated on. This can also be applicable to leasehold properties.
A leasehold property allows ownership of the property for a fixed period of time i.e. 99 years or 125 years. Leasehold properties were introduced to get more people in the property ladder. Purchase of leasehold properties increased more and more in the construction of flats.
You will have an agreement with your landlord, usually known as the freeholder, called a “lease”. This document will tell you how many years you will own the property. The lease will also contain rights and obligations which you must comply with. For example, in leasehold flats the freeholder will be responsible for maintaining the common parts of the building i.e. hallways, roof and walls.
There will also be restrictions on what sort of works you will be able to do in the property and prohibition on subletting or owning a pet. When the freeholder intends to carry out work to the Building it will issue you a notice of this and the cost of these works will be covered by you and the rest of the leaseholders through a Major Works statement, payable in instalments. You will be liable to pay for ground rent to the freeholder and service charge for the maintenance of the common areas of the building which the flat is situated in. Please take extra cautions when deciding to purchase leasehold property and make sure your Solicitor explains how ground rent and service charge will be payable as in the recent years we have seen onerous clauses. This can mean that if you are not careful you may be liable to pay ground rent which doubles every 5 to 10 years meaning that you are paying ground rent like rent. Once the ownership of the property comes to an end the property will need to be returned to the landlord. When the lease term is usually in the region of 90-70 years remaining a leaseholder will make an application to the landlord to extend their lease for a premium. In most circumstances, the property is not returned to the landlord and the lease term is extended.
Some properties are advertised as a share in the freehold title. Do not automatically assume that this grants you freehold title over the Property. This means that the owners of the leasehold properties have bought the freehold title from the freeholder and they all own a share of it. They own their properties as leasehold and a share of the building and the land that is on the freehold. Once the freehold title is acquired the leaseholders usually grant a 999 year lease to all leaseholders. Commonly the maintenance and repair of the building is dealt by the leaseholders and they decide on the repairs themselves and pay for these in equal shares. Hence, there is no management fees to be payable to the management company.
Additionally, you will also have a share in the common areas of the building i.e. roof, walls, stairs, hallway and be responsible with the other leaseholders for the upkeep of those areas. Alongside this, you will also need to insure your flat and the common areas of the building.
You may also come across a property that is not registered. It will be compulsory for you to register the property on completion of the transaction. An unregistered property does not mean that there is a problem. It merely means that there has not been a transaction to trigger an application.
The complicated part with unregistered property is that you will need to produce the physical title deeds or if these are lost you will need to provide evidence to the Land Registry explaining why the deeds cannot be produced and the person claiming to be the owner is the true owner. These should not prevent you with purchasing an unregistered property if such opportunity interests you.
When buying a property along with the purchase price you should take into consideration the related costs and these include:
- Solicitors fees and disbursements
- Stamp duty
- Land Registry fees
- Mortgage fees
- Removable costs
- Estate agent fees (payable by the seller)
- Refurbishment and renovation costs
- Property management costs if you decide to appoint a property manager to manage your property
If this sounds complicated to you, be assured that if you are in the hands of an experienced and professional Real Estate Solicitor you do not need to panic or be hesitant in your purchase of a property in the UK.
If wish to discuss the contents of this article or have any queries, please contact Real Estate solicitor Ezgi Cetin at firstname.lastname@example.org.