Buying a leasehold property is a way to own a home without purchasing the land. These properties are very common in the UK, especially for flats and maisonettes. Some houses can also be leasehold, particularly legacy and shared ownership schemes.
The Leasehold and Freehold Reform Act 2024 restricts new-build houses from being sellable as leasehold, but this is awaiting full commencement.
What is a Leasehold Property?
When you buy a leasehold property, you own your home for a fixed period. However, you do not own the land it sits on. That land belongs to the landlord, also known as the freeholder. The legal contract between you and the freeholder is a lease.
This lease outlines the number of years you will own the property. Most leases range from 90 to 999 years. Once the lease expires, ownership of the property reverts to the freeholder unless you have extended it or bought the freehold.
If a long lease expires, you do not have to leave immediately, as statutory continuation tenancies may apply until the freeholder takes the correct legal steps.
Your Rights and Responsibilities as a Leaseholder
Owning a leasehold property brings specific responsibilities, all detailed in your lease agreement. As a leaseholder, you may need the freeholder’s permission to make significant alterations to your property. This could include building extensions or installing new windows.
You will likely contribute to the maintenance of communal areas such as stairwells, gardens and the buildings exterior. You may also be responsible for internal repairs, depending on the terms of your lease.
Breaching the terms of your lease could result in legal action from the freeholder. In severe cases, this might lead to forfeiture of the lease, which could mean losing your home.
However, leaseholders do have legal rights:
- You have the right to know the freeholder’s name and address
- You can request detailed information about service charges
- You must be consulted before major works are carried out
- You can challenge charges you believe are unreasonable
Due to the Building Safety Act 2022, many qualifying leaseholders are not liable for cladding remediation and have caps or limits on some other historic safety defect costs. Liability now depends on your building and lease status.
Leasehold Property Charges
Service Charges
These cover the maintenance and repair of shared areas in your building. This may include cleaning, landscaping, lift maintenance and communal heating. Your lease will outline what you are responsible for and how charges are calculated.
You have the right to request a detailed breakdown of service charges. You can also view supporting documents such as invoices. Landlords must provide this information, as failure to do so can be a criminal offence.
Ground Rent
This is a payment to the freeholder for the land on which your home stands. Though often modest, it can increase over time.
- Ground rent demands are issuable via a statutory Section 166 notice, as without this, the rent is not payable
- If you signed your lease before 30th June 2022, ground rent is payable upon receiving a formal demand
- Freeholders can request unpaid ground rent from the previous six years
- Leases signed on or after 30th June 2022 must set ground rent at a “peppercorn” (effectively £0), under the Leasehold Reform (Ground Rent) Act 2022
Reserve or Sinking Funds
You may also pay into a sinking fund, which covers major, one-off repairs like roof replacement or lift refurbishment. These payments are typically non-refundable if you move out.
Building Insurance
In most leasehold agreements, the freeholder arranges building insurance. The cost is passed to leaseholders through service charges. You can request a summary of the policy and challenge costs you consider excessive.
Leasehold Property Lengths and Extensions
The length of your lease impacts your property’s value and mortgage eligibility. When a lease falls below 80 years, the property’s value can decrease, and lenders may be reluctant to offer a mortgage.
Since 31st January 2025, you no longer need to own the property for 2 years before starting a statutory lease extension or collective enfranchisement. You can request to extend your lease at any time.
If the original lease was over 21 years, you likely qualify for an extension:
- +90 years at a peppercorn ground rent for flats
- +50 years, usually at a modern ground rent, for houses
Extending a lease involves:
- The premium
- Legal fees
- Valuation expenses
- Possibly the freeholder’s legal cost
Disputes and Management Issues
If you are unhappy with how your building is managed, there are steps you can take to improve the situation.
Appointing a New Manager
You can apply to a tribunal to appoint a new manager if you can prove mismanagement. This could involve being overcharged or the freeholder failing to follow proper procedures.
Before applying, you must issue a preliminary notice under Section 22 of the Landlord and Tenant Act 1987. This gives the landlord a chance to address the issue.
Exercising the Right to Manage
The Right to Manage allows leaseholders to take over management responsibilities without proving bad management. You and the other leaseholders must meet legal qualification and follow proper procedures. Once approved, you can manage the building yourselves or hire a managing agent.
Buying the Freehold
Purchasing the freehold grants you full ownership of both your property and the land it occupies. This eliminates ground rent and gives you control over maintenance and repairs.
Buying the Freehold for a House
If you own a leasehold house, you may have the legal right to buy the freehold, a process known as enfranchisement. You can approach the landlord at any time to request a sale.
Buying the Freehold for Flats
For flats, freehold purchase is more complex. You and other leaseholders in the building can join together to buy it through collective enfranchisement . At least 50% of the leaseholders must agree.
Owning a share of the freehold offers more control and simplifies lease extensions. However, it involves costs and administrative responsibilities, such as forming a management company or hiring a managing agent.
When the Lease Ends
If your lease expires, you do not have to leave your home immediately. The lease usually continues as a statutory tenancy until you or the landlord end it through prescribed legal steps.
You can choose to end the lease early by giving at least one month’s notice in writing.
In rare circumstances, the freeholder can end the lease through forfeiture, This usually only occurs if you seriously breach the lease terms and fail to remedy the situation after normal notice.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.