My mummy always said to me, “buy a freehold house, don’t buy a leasehold flat. Then you know it’s completely yours and you can do what you like”. I used to think that she was old fashioned and that it was a generational thing. However, after reading about the woes so many leaseholders are having with their landlords in relation to the astronomical service charges they have to pay or are expected to pay in relation to the removal of existing cladding and getting their buildings re-clad; or how much my friend Sasha was asked to pay 2 years ago by her management company towards the cost of new windows in her 1970s mansion block of flats I am now thinking that my mummy is perhaps as wise as she looks!.
What is freehold?
When you buy a freehold property then, generally speaking, you own the property, the land it sits on and the space above it. No landlord and management companies (unless you live on an estate where the management company takes care of communal gardens and estate roads). The maintenance of the building is entirely up to you.
You own the lease to a property only for a finite period and the freeholder owns the land and building. You will pay ground rent, service charge and maintenance fees. You’re effectively renting on a long lease and at the mercy of the freeholder.
The most common leasehold flat tenant covenants?
- You pay service charges and ground rent to the freeholder or management company, which can increase every few years
- You may need written permission to make alterations to the property and the landlord may charge a significant administration fee
- You might not be able to run a business from home which it may be very important to you in this climate
- You may not be able to sub-let
- You may not be allowed pets. This would be very devastating if you are a pet lover
Trips and Traps to watch out before you purchase leasehold property
- Check if parking is included within the property or a right to park is granted
- Lease term – the fewer years are left on the lease, the harder it will be to sell the property
- Ground Rent and Ground Rent review
- Tenant Covenants – what you can and can’t do and your obligations as leaseholder
- Landlord Covenants – what the landlord is responsible for
- Service charge provisions
- Buildings insurance provisions
- Fire safety and cladding issues
- Any other provisions in the lease that might impact on the lender’s security or the value of the property
- The extent of the demise
- The repairing obligations under the lease
- If it is defective lease you need to consider the cost to vary the lease
If you have a leasehold property it can become expensive, and you may have to deal with a difficult landlord or management company which makes your property less enjoyable and can leave you with financial burdens, uncertainty and anxiety.
If you have a freehold house, the windows can be rotten and the exterior of the house needs rendering but if you can’t afford it you do largely have the choice to leave doing the works until you can afford it, do DIY or sort out as cheaply as possible even if it ends up looking less than stylish. With a leasehold flat you have little choice and if the landlord or management company decides that certain works are necessary and they want to do it this year then by and large you have little choice and you have the burden of paying the service charges and bang goes that holiday you were dreaming of in Mauritius!