Like many other areas of business, the property buying and selling world is full of special terminology and jargon. It all makes sense when you know what it all means, but if you’re still getting to grips with everything, it can be confusing. In this post we’re going back to basics and taking a look at the lowdown on property leases and what they mean to buyers and sellers.
What are property leases?
A property lease is essentially a form of legal and contractual agreement regarding the ownership of your property. There are different types of property leases and they dictate what you can and can’t do to your property. The main types are freehold, leasehold and commonhold property leases.
If you have a freehold property it means that you own your property outright, including the land its built on. Most houses built in the UK that are sold to buyers are freehold properties
If you own a freehold, it means that you’re 100% responsible for the upkeep of your property and land – you can decorate or update it when you want to and you don’t have to pay any ground rent, service charges or other fees to a landlord.
If you buy a property with a leasehold it means that you own the property, but not the land it’s on, for the length of time left on the lease agreement. You can find out how much time is left on the leasehold when you’re purchasing the property. When the lease ends, the ownership returns to the freeholder.
You’ll need to know how long the leasehold lasts for, as the amount of time left can affect your ability to get a mortgage and to re-sell your property in the future. Mortgage lenders typically need the lease to extend for 25 years or longer beyond the end of your mortgage.
Most flats (except in Scotland) and some houses are sold on a leasehold basis. It is possible to ask the freeholder to consider letting you extend the leasehold, but this does cost money and can be expensive.
As a leaseholder, you’ll need to get permission from the freeholder if you want to make certain changes to the property. You’ll also be required to pay an annual ground rent fee to the freeholder and sometimes service or maintenance charges.
A commonhold is a type of freehold property ownership that’s designed for people living in flats or apartments. Normally, flats are sold with a leasehold, but if all the owners within the building agree, you can get together and form a Commonhold Association.
The Commonhold Association is company that can then apply to become the freeholder of the building.
As you can see, it’s highly useful to be aware of the different types of leases, especially when you’re buying property. Whilst a freehold lease tends to give you more control of your property and what you choose to do with it, if you’re buying a flat or apartments it’s often hard to avoid having to purchase a property with a leasehold. If you do buy a leasehold property, try and look for one with at least 80 years on the lease, as this will put you in a good position for obtaining a mortgage.
If you own a leasehold property in London and are having difficulties selling it, for example due to a short lease, contact Molae Properties today.