The ins and outs of buying a freehold containing leasehold properties

As a lettings and sales consultancy for the whole of the Midlands, we receive a large number of queries around the matter of leasehold and freehold properties.

It’s most often that questions are asked if a buyer has their eye on a property that happens to be under a leasehold. If a buyer is looking at a freehold property, most people understand that they will be buying complete ownership of that property.

For landlords buying a freehold property with leaseholds within it, however, there are more questions to be answered.

In any case, it’s important to understand what kind of property you’re buying into. Your solicitor will inform you of the exact terms that your contract stipulates but before you get to this stage, knowing more about leaseholds and freeholds and their pros and cons will inform your offer.

Firstly, what is a freehold?

if you own a freehold, you own a plot of land and any building upon it. As a freeholder, you won’t have a landlord, there’ll be no ground rent, and there’s no need to worry about a lease running out. What you will need to concern yourself with are the costs involved in maintaining the land and any structures upon it as you’ll be fully responsible for these. Types of freehold ownerships include buildings containing leasehold properties such as flats or maisonettes, garage blocks, land, houses, car parks, and office buildings.

And what is a leasehold?

If you own a leasehold, you own the property but do not own the land it is built upon, or the building it sits within. The freeholder has a responsibility to maintain a good level of upkeep to the immediate area. Flats are commonly leasehold properties, but some houses are sold as leaseholds too – both will come with ground rent that the leaseholder must pay to the freeholder. The freeholder will own the lease and the lease governs the responsibilities of the buyer and the freeholder. Leases are usually between 90 and 120 years but can be a long as 999 years. The number of years left on the lease will affect a buyer’s ability to gain a mortgage and sell the property on. The lease can be extended or purchased in agreement with the freeholder.

What does this mean for owners of freeholds that contain leasehold properties?

  1. As a freeholder with leasehold properties, you are a landlord; a title that comes with many responsibilities. You’ll be accountable for building insurance, management packs and communication, upkeep of communal areas, maintenance works, and more. Make sure you can afford to provide these services in terms of finances and time management – as your solicitor will inform you, you will be legally required to do so.
  1. Collecting ground rent and fees from your leaseholders could be a time-consuming task, especially if you happen to have problematic or demanding tenants. You are also legally liable to notify your tenants of the change in landlord. Financial situations between you and the tenant could also arise which means you end up in court. Tensions between the tenants themselves may also mean legal action is taken up, and as their landlord, these relationships could cause you stress and hassle that you might not have time for.
  1. When the leasehold property is sold from one leaseholder to another, the rights and responsibilities are transferred to the new leaseholder. This seems an obvious statement but it’s important to note that the freeholder won’t be able to update or amend the terms of the lease, nor will they be able to issue new leases upon purchasing the freehold, or upon the sale of the leasehold property. On the other hand, no harm is done by approaching the leaseholder to see if they would like to agree to new lease terms.
  1. Flying freeholds should be approached with caution. This is where part of a property overlaps another. You might find a flying freehold occurs where a balcony overhangs into a property below, a basement lies beneath a neighbouring house, attics that exceed the boundary line, or where a room lies above a shared space. Flying freeholds are complex and will require more work from your solicitor, amounting to a higher bill.
  1. You will be subject to Collective Enfranchisement. This is the leaseholder’s right to buy the freehold from you, the freeholder. The purchase could be a long, complicated process for the leaseholder. Although there is potential to sell for a large sum, you will no longer be able to collect ground rent or fees from them if they proceed with the purchase.

If you’re thinking of purchasing a freehold with leasehold properties, please do consider taking free professional advice from ourselves with no obligation, before you go ahead.

In other news

We were honoured to attend the East Midlands Chamber Leicestershire Business Awards this month, held virtually for the first time ever.

As a sponsor of the Generation Next – Young Professional of the Year awarding category, we’d like to say a big well done to our much-deserved winner Lee Tomes of Orange Fox Studios.

And as a finalist ourselves in the Outstanding Growth category, we’d also like to congratulate QDTS on their win this year. Well done to all!

 

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