Leasehold Property – A good or bad thing?

The Property I want to buy is leasehold. Is this a good thing or a bad thing?

You may not be surprised to hear that the short answer is ‘it depends.’

If you buy a freehold of land, no one has a superior interest in that land (technically the King owns the whole country, but we can ignore that for this article!) If you buy a lease, there is of course a landlord. When your lease ends, the property will belong to the landlord.

There is nothing inherently wrong with leases. They have been around for hundreds of years and have been an effective way of allowing a tenant to occupy land or buildings for a defined amount of time. Since the landlord will one day get the leasehold property back, there are usually conditions attached to a lease about what the tenant can do with it. Each party promises in the lease to behave in a certain way and these promises to do (or not do) things are called ‘covenants’.

It is possible to attach covenants to freehold property but following a series of Court decisions roughly 50 years ago, covenants in freeholds are hard to enforce. It is much easier to enforce covenants between landlord and tenant. This is why flats are always leasehold nowadays. In a block of flats, it is important that covenants can be enforced so that everyone abides by them. Everyone can then live peacefully in the same building.

Sadly, the relationship between landlord and tenant has come to be exploited in the recent past. Although the primary reason for residential property being leasehold is to make covenants enforceable, leasehold also enables the landlord to charge rent and to make administrative charges for giving consents where the lease requires these.

Flats and even new build homes were sold as leasehold and substantial ground rents were charged on them. When the estates were completely sold off, the developer would sell to a specialist ground rent collector who would also then charge substantial fees for giving any consent required under the lease. Some leases were sold with rents that increased astronomically and made the flats unsellable. These practices have been reported in the media in recent years and the reputation of leasehold as a form of ownership has been damaged as a result.

If you are thinking of buying a flat, it will be leasehold. This is not necessarily a bad thing, but you will need specialist advice on the terms of the particular lease of the flat you want to buy.

The Conveyancing team at MJP Law deal with leases every day and can advise you on how the lease of your property affects you. For more information, please contact conveyancingteam@mjplaw.co.uk.