Who Owns A Property When The Lease Expires?

Nikka Sulton

Who Owns A Property When The Lease Expires?

Leasehold arrangements are common in the UK, especially in flats and some houses. Each flat or property is owned by a leaseholder, while the building itself belongs to a freeholder. Expenses like maintenance are divided among leaseholders through service charges.

The terms of the lease, a legal document, outline responsibilities, rights, and charges for both the leaseholder and freeholder. While leasehold properties may involve ground rent and certain restrictions, they often come with lower costs and greater accessibility, especially in urban areas.

Despite the misconception that owning a freehold is preferable, being a leaseholder has its advantages, including affordability and availability. Mortgage lenders typically accept long leases as security, making leasehold properties viable investments for many buyers.

What is a leasehold & what does it mean?

When purchasing property, you’ll encounter two main types: freehold and leasehold. With freehold, you own the property outright, responsible for its maintenance and upkeep. Leasehold, however, entails leasing the property from a landlord, even though you’re paying mortgage repayments and bills as if you own it.

In a leasehold arrangement, the freeholder, or landlord, retains ownership of both the property and the land it occupies. As the leaseholder, you’ll typically pay ground rent to the freeholder, in addition to your mortgage repayments. Essentially, while you’re investing in the property through repayments, you’re still obligated to pay rent to the freeholder.

How do you find out how long a lease is left?

There are several methods to determine the remaining duration of a lease. If you’re a prospective buyer, the estate agent usually possesses this information, as they have access to the lease title.

Alternatively, you can consult the Land Registry, where, for a fee of £7, you can obtain a copy of the Leasehold Title. This document provides a clear indication of the remaining lease term.

Upon reviewing the Leasehold Title, locate the section indicating the lease expiration term, typically found beneath the statement “under which the land is held.” This section will detail the remaining duration of the lease.

What happens when the leasehold expires?

When a leasehold property’s lease expires, the property transitions back to a freehold status, returning ownership of the land and building to the freeholder.

For instance, if your property had a remaining sixty-year lease in 2019, by 2079, despite having fully paid off your mortgage, ownership would revert to the landlord.

This reversion entails no legal recourse for the leaseholder. It’s crucial to exercise caution with leasehold properties to avoid being exploited by hidden costs like ground rent.

What should I consider before buying a leasehold?

Before committing to the purchase of a leasehold property, conduct thorough research on the property’s details. Review the ground rent, annual service charges, and insurance obligations that will be incurred upon occupancy.

An essential aspect of this research is determining the remaining duration of the lease. Properties with less than seventy years left may pose challenges for future resale or mortgage acquisition.

It’s widely acknowledged that leaseholders endure more complexities than freeholders. A key recommendation is to opt for a leasehold property with a lengthy lease term.

When considering a leasehold purchase, aim for properties with approximately 90-120 years remaining on the lease, which is deemed optimal. Some leases even extend up to 999 years, offering exceptional security and peace of mind.

Advantages & disadvantages of buying a leasehold

When considering the purchase of a leasehold property, it’s essential to weigh the pros and cons. While discussions around leasehold might seem predominantly negative, there are indeed some positives to consider.

Pros

Leasehold properties are generally more affordable than freehold ones.
In some cases, there is reduced responsibility for repairs and maintenance associated with leasehold properties.

Cons

Ground rent payments are obligatory to the freeholder in a leasehold arrangement.
Leasehold agreements often impose limitations on property alterations or modifications.
Property value may decrease as the lease approaches expiration.
Securing house repayments might become challenging if the lease term diminishes below a specific threshold.

Leasehold vs Freehold – The difference

A freehold property signifies complete ownership of both the property and the land it occupies, with no temporal constraints or lease agreements. This ownership entails no necessity for lease extensions or adherence to specific property-use restrictions.

Contrarily, acquiring and maintaining a leasehold property involves additional fees and entails perpetual engagement with the freeholder, as the land remains under their ownership. While freehold ownership is inherently preferable, it often commands a higher price point, necessitating consideration of associated costs.

Are all flats Leasehold?

In the majority of instances, flats are indeed leasehold properties. While exceptions exist, they are rare. Certain leasehold flats may offer the opportunity to acquire a share of the freehold, typically involving engagement with a residents management company.

Do Leasehold properties lose value over time?

As the lease on a property diminishes without renewal, it can indeed lead to a decline in property value. However, market fluctuations may offset this effect, as a booming local market can drive up property values.

Negotiating a lease extension, particularly when the lease term falls below a desirable threshold, such as around 40 years, can also enhance the property’s value.