Sian Hiatt, Sales Manager, explains what a leasehold property is and what some of the important differences are between leasehold and freehold properties...
According to July 2020 leasehold research carried out by the Welsh Government, around 16% of all properties in Wales are leasehold. To put a property count on it, that would mean approximately 235,000 properties in total - and with the number of newly-built homes, flats and apartment blocks ever increasing, we can safely assume that figure will also steadily rise.
Land Registry Price Paid Data indicates that leaseholds currently make up 12% of all property transactions in Wales, with the majority of those transactions involving flats - 64.3%. This should mean it will come as no surprise to learn that most leasehold properties are located within densely populated areas, with busy cities such as Cardiff and Swansea facilitating a high proportion of those leasehold transactions.
Many people purchasing a leasehold property don’t fully understand the differences between leasehold and freehold, but it’s extremely important for a buyer to educate themselves so that they are fully aware of both the benefits and implications that may come with owning a leasehold property.
Those who purchase a freehold property own the building and the land that it was built on, while those who purchase a leasehold property own the property (which can be one specific flat within a large building) but they do not own the land. Instead, leasehold property owners essentially rent the land from the freeholder for a number of years that is stipulated in the lease. This also means that ownership of the property will also be for the same set number of years, decades or centuries, depending on the length of the lease. If the freeholder chooses to sell their lease, the purchaser will acquire the remainder of the term.
Check this previous article out if you’re interested in potentially buying the freehold to your flat or apartment.
New leases can be created for any term, though 99 or 125 years are the most common. With that said, some leases also run for as long as 999 years, so if you’re considering the purchase of a leasehold property it’s important to check how many years remain. If a lease reaches the end of its term, the lease will expire and all leaseholder’s rights and interests in the property will cease and revert to the freeholder.
That sounds quite alarming, and though it’s vital that leaseholders are clued up on the length of their lease, it’s also important to realise that in most cases a lease is simply extended as it nears its expiry.
Certain conditions do need to be met and the funds need to be raised, and in doing so the lease can be extended by 90 years for a flat, or by 50 years for a house.
Mortgages for a leasehold property are of course available from lenders, but how easy it will be to obtain one will depend on many factors, not least of all the affordability to pay back the mortgage. Another main factor lenders consider is the length of time left on the lease. As a general rule, a leasehold property with less than 80 years left to run is likely to be deemed a short lease, which will prove to be more expensive to extend. This can pose a problem as it can significantly devalue the property, which may result in difficulty finding a mortgage lender who’s willing to lend on it, and likewise with finding a suitable buyer should you choose to sell it while the short lease is still in place. Once the number of years left on the lease falls below 70, it is typically extremely difficult to obtain a mortgage on the property
As mentioned previously, most leasehold properties are flats and apartments, and the lease will include a set of contractual obligations for both the leaseholder (the owner of a specific flat or apartment) and the freeholder (also referred to as the landlord - the owner of the building and the land).
Typical responsibilities that the freeholder must contractually take care of include:
These duties may be controlled by the freeholder, but it’s leaseholders who will cover the costs through an annual service charge. Leaseholders should receive a regular breakdown of all recent charges to understand how their service funds are being spent, and should they feel the service charges are unreasonable it is possible to challenge them through a service charge dispute.
Leaseholders also have their responsibilities, such as restrictions on certain changes that can be made to the property, sub-letting terms and conditions, the allowance of pets, using the property for business purposes, and more. It’s important that prospective buyers gain a full understanding of leaseholder contractual obligations before committing to purchase a property with a leasehold. If any conditions are breached, there is the risk of being taken to court and potentially losing their lease.
Are you thinking of buying a flat or an apartment in Cardiff? It could be a home to live in, or perhaps you’re a landlord looking to make a further investment in the property market - in either case, our expert sales and lettings team here at CPS Homes are eager to help. Contact us today by calling 02920 668585, e-mail firstname.lastname@example.org or pop into one of our three Cardiff branches.