April 18, 2024 4:26 pm

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Nikka Sulton

Many individuals possess leasehold properties, a form of home ownership known for its complexities. Due to its negative reputation, the government is implementing reforms aimed at reducing lease extension costs and prohibiting ground rent on new leases. This guide elucidates leasehold tenure, forthcoming changes, and avenues for recourse in case of issues.

“Leasehold” denotes a property purchase where the buyer acquires the buildings and structures but not the land, which remains under the ownership of the original landowner. This setup often involves complexities in legal matters. To gain clarity on leasehold-related property law, reach out to us. Meanwhile, weigh the pros and cons of purchasing leasehold properties.


What does leasehold mean?

When acquiring a leasehold property, you’re not obtaining the land it occupies; instead, the land remains under the ownership of a freeholder. Freeholders, sometimes termed ‘landlords’ when no managing agent is involved, oversee the property.

Essentially, a lease represents a prolonged rental agreement granting the leaseholder the right to utilize the property for a specified duration, typically ranging from 40 to 999 years.

The length of the lease often correlates with the property’s marketability, with shorter leases generally rendering the property less desirable.

Lease agreements outline various terms, including ground rent, service charges, and usage restrictions. For leasehold houses, these restrictions may encompass:

  • Maintenance fees and annual service charges for shared green areas or driveways
  • Ground rent
  • Service charges
  • Limitations on property extensions, major renovations, or subletting imposed by the freeholder.


Pros and Cons of Buying Leasehold Properties





Purchasing a leasehold property is generally cheaper than buying a freehold property since you acquire the building without owning the land. This affordability can make leasehold properties an attractive option, especially in desirable urban areas.


Finance flexibility: 

The lower value of leasehold properties compared to freehold ones provides an alternative financing option. Buyers may have the opportunity to buy the entire property, including the land, at a relatively lower annual fee compared to a traditional mortgage. However, it’s crucial to review the terms of the lease agreement thoroughly, preferably with a specialist property lawyer, to ensure clarity and entitlements.



Despite not owning the land, leasehold properties still grant homeownership, allowing residents to make home improvements and personalize their living spaces without the extensive costs and commitments associated with owning land.




Rent reassessment: 

The initial land rent may seem reasonable, but it’s subject to regular reassessment based on property market fluctuations. If the area experiences a surge in property values, you might find yourself facing higher ground rent payments, potentially straining your finances.


Financing hurdles: 

Leasehold properties often necessitate larger deposits compared to freehold ones and can pose challenges in securing financing due to their complex terms. It’s advisable to have a conveyancing solicitor review the agreement to ensure clarity before approaching banks or lenders for financing.


Lack of land value benefits: 

Since you don’t own the land in a leasehold arrangement, you don’t reap any benefits from increases in land value. Instead, if the area experiences a rise in property demand, the landowner stands to gain, potentially leading to increased rent payments for you without corresponding ownership benefits.


Why are leasehold houses controversial?

Numerous property and legal professionals contend that there’s little justification for developers to maintain the freehold of a sold house. They argue that leasehold arrangements for houses primarily serve the developer’s financial interests, often to the detriment of the leaseholder.


It is argued that leasehold houses are conceived purely for the developer’s financial benefit and at the expense of the leaseholder.


Spiralling ground rents

Leasehold houses often include escalating ground rent clauses, sparking significant controversy. In some cases, leases dictate that ground rent doubles every decade.

While an initial ground rent of £500 annually might not raise concern for a new owner, the long-term implications become apparent when considering the impact of doubling ground rent over time.

Year Annual ground rent if linked to RPI* Annual ground rent with doubling ground rent
1 £500 £500
10 £597 £1,000
20 £728 £2,000
30 £887 £4,000
40 £1,082 £8,000
50 £1,319 £16,000
60 £1,608 £32,000
70 £1,960 £64,000
80 £2,398 £128,000
90 £2,913 £256,000

* RPI for next 90 years assumed as 2% p/a compounded

The table demonstrates how a doubling ground rent becomes increasingly costly over time, potentially trapping leaseholders. This situation makes it challenging for them to afford the ground rent and sell the property. Additionally, escalating ground rent clauses pose obstacles in securing mortgages.

The main types of ground rent schedules are:

Ground rent schedule Comment
Doubles every 10 years (spiralling) Generally considered one to avoid
Doubles every 25 years More acceptable.
Increase linked to RPI (Retail Prices Index) Any increase is in line with inflation and is generally viewed as the fairest.

Spiralling ground rents in the lease, along with potential restrictions in developing the property and the various fees payable to the freeholder, you must be very clear on what you are entering into before you buy a leasehold house.


I didn’t know my house was leasehold when I bought it

Leasehold properties make up about a quarter of residential homes in the UK, with leasehold houses, though less common than flats, increasing in prevalence. The Department for Communities and Local Government suggests their numbers range between 1.4 million and 2.9 million, more than previously estimated.

However, the concept of leasehold houses is relatively new, catching out some conveyancing solicitors who assumed these properties were freehold. If your solicitor overlooked the leasehold status during your property purchase, you might have grounds for legal action. Solicitors are expected to highlight any potential issues before purchase, and failure to do so could lead to legal recourse.

Especially if your conveyancer was recommended by the developer in the case of a new build house, there might be concerns about conflicts of interest. The conveyancing process typically involves providing a ‘Report on Title,’ detailing all aspects of the property, including any leasehold arrangements or problematic clauses like escalating ground rent. If these issues were not adequately addressed by your solicitor, pursuing legal action to recover losses could be an option.


Should I be wary?

When considering purchasing a leasehold house, it’s essential to focus on several key areas:


  1. Unexpired Lease Term: Properties with an unexpired lease term of 80 years or less may face challenges in obtaining a mortgage and are generally less desirable.
  2. Ground Rent: Take note of the current ground rent amount and any provisions for future increases.
  3. Service Charges: Understand the level of service charges and any potential for future increases.
  4. Restrictions: Be aware of any restrictive clauses regarding the use or adaptation of the property.
  5. Freeholder History: Research the historical conduct of the freeholder, which can be done by contacting HM Land Registry and conducting online research.

It’s crucial to engage a conveyancing solicitor with expertise in leasehold properties. When selecting a solicitor for a leasehold house purchase, inquire about their experience specifically with leasehold houses.


Leasehold houses – update 2024

The Competition and Markets Authority (CMA) is currently investigating the leasehold sector, focusing on several key areas:

  • Escalating ground rents
  • Unfair contract terms
  • Mis-selling practices
  • Service and permission charges
  • Lack of adequate checks and balances

The CMA has initiated formal enforcement action against major residential property developers and companies that have acquired freeholds from developers.

As a result of this scrutiny, some developers have stopped selling new-build leasehold houses. However, the potential implications of these developments for existing leaseholders remain uncertain.




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