What is 'leasehold' anyway?

Posted 25/07/2017 by: Reeds Rains

What is 'leasehold' anyway?

The government have today announced plans to outlaw leaseholds on new-build properties. So we're asking - what is 'leasehold' anyway?

Well, there are two main ways that you can own a property: freehold and leasehold.

Freehold vs leasehold

If you own a freehold property you own it outright - including the land it's built on. It means you are solely responsible for maintaining the land and property, but you don't need to pay any rent or service charges, and you don't need to worry about the lease running out.

If you own a leasehold property then you only own the property and its land until the end of the lease, at which point it returns to the owner. 

Charges for leasehold

Because flats and maisonettes are single residences within a larger building, they are usually leasehold. The landlord owns the block and the land it stands on. Leaseholders share the costs for the maintenance of the building and land by paying a service charge to the landlord. This might cover:

  • upkeep of communal gardens
  • electricity bills for communal areas
  • cleaning of communal areas
  • repair and maintenance of exterior walls, doors and gateways

You might also be charged for:

  • ground rent
  • admin charges
  • buildings insurance
  • a sinking fund (to cover any unexpected maintenance work)

If you're planning to buy a leasehold, make sure you know what charges you will be expected to meet. How does this fit into your budget?

The length of the lease

If you buy a leasehold property then you take over the lease from the previous owner. You must take time to consider the length of the lease.

Don't just consider how it affects you when you buy the property, but also if (and when!) you come to sell it further down the line.

The lease could affect your chances of getting approved for a mortgage. A lender would normally need the lease to run for around 25 years after the mortgage comes to an end. So it can be hard to sell a property if the lease is for 80 years or fewer.

It is usually possible to extend your lease, though the landlord may charge a fee for this.