Some of you thinking to buy a property may get overwhelmed at the onset, with the idea of having to experience a lot of formalities, legal terms and procedures. A couple of these terms that we mostly hear and read are “Leasehold” and “Freehold” properties. But what do these terms mean? Are there legalities attached with them which you must be aware of when buying property? What is the fundamental difference between these two and which is better? So, here is a complete guide about leasehold and freehold property.
If you have a property on freehold basis, you completely own that property and the land it stands on. Freehold properties, or flat with share of freehold, are generally more pleasing than leasehold property and are worth more. A possible disadvantage is that any needed repairs are upon you to organize, but it’s completely up to you if you want to get them done or not. Owning any property on leasehold base can be less beneficial for homeowners, so one may want to think of buying your property on freehold basis.
Advantages of freehold
There are obvious advantages of possessing the freehold of property in comparison to leasehold:
- The lease which you own will last for a fixed years. After the lease tenure is at end possession of home passes back to freeholder, thus as more term expires, property becomes less expensive. You don’t face such problem with freehold.
- The freehold properties aren’t subjected to the different charges that any landlord can apply that tend to be hard to challenges.
- In fact, the homeowners don’t need to deal with landlord at all since they are freeholder and have general responsibility for that property (or share of property).
What problems can you face when buying the freehold?
Now, there are a few barriers that can get in leaseholder’s way, who are going down collective enfranchisement route. Besides the cost of buying the freehold, which could be higher, there is the requirement to create new company which has directors ready to put in work and efforts to manage its affair. If only half of the owners in any block wish to participate, the cost to every leaseholder will efficiently double compared with cost of the plan which manages to draw participation from 100 percent of owners.
Being a leaseholder, you will own the property; however, not the land on which it stands. Flats are owned usually on leasehold basis. Houses could be leasehold as well, but they don’t tend to be unless bought through shared ownership schemes. Buying a leasehold real estate means you’ll possess it for fixed time period. A legal agreement will be there in place with landlord.
Leasehold property: How long does a lease last?
Lease will decide how many years can you live in the specific property. At the ending of the lease, ownership of property will revert theoretically to the landlord.
Some may find it difficult to get a credit if there are lesser than 70 years on lease of the specific property you wish to purchase.
Leaseholder responsibilities and rights
Managing agents are a company’s appointed by freeholders to look after communal areas around different blocks of flats, to collect ground rent, buildings insurance premiums and services charges.
Leases will differ but you’ll generally need to get permissions to make alteration to your property. The service charges tend to be the money that you’ll pay for maintaining the property. The managing agent arranges the building’s insurance if you are in any block and charges you a part of the total premium.
Leasehold property: selecting right to manage
An option open to the leaseholders who want much more control is right to apply RTM or ‘right to manage’; removing managing agent and fully handing the management agreement to a new agency, or setting up their company to take complete management into their hands.
Leaseholders can establish the RTM agency without the consent of landlord and there isn’t any requirement to prove misconduct by the landlord. However, they do have to protect the participation of 50% qualifying tenants at least in one block of flats, plus up to 25 percent of the building could be commercial only.
Leasehold property: is RTM a good idea?
Going for RTM may appear like an excellent idea to let owners to take their own decision and control their affair, but the change does mean lots of hard work as well as greater responsibility for the leaseholders.
They become accountable for decisions making around budgets, standards of management, reserve funds, repair and all the other main works. It is usually accepted that if any block has more than 6 flats it’s a good idea still to employ an expert managing agent.