What is a leasehold property?

What is a leasehold property? A leasehold property is an arrangement where you have a right to live in your home for a limited amount of time. How long remains is set by the length of the lease.

Leasehold is a common arrangement in England and Wales, but Scotland has a different system. Government statistics show that there are around 3 million leasehold flats, with another 1.4 million houses.

The lease is a formal agreement with your freeholder (or landlord) to outline a specific period for your tenancy such as 125 or 999 years. At the end of this period your property returns to the freeholder.

Because your property is eventually returned to the freeholder, you are technically a tenant of the property, rather than the owner.

Being the leaseholder of a leasehold property means you may have to follow certain rules set out in your lease. For example, you may not be allowed pets at the property or to make certain home improvements. Breaking these rules might mean you lose your right to live in the property, although there is a process for contesting this.

Charges

You may also have to pay certain charges to your freeholder.

These might include:

1. ground rent: a form of annual rent paid to the freeholder
2. management charges: money towards the management and upkeep of your property / the block
3. permission charges: money the freeholder charges should you want to make a change to the property such as a different front door colour or the addition of an extension
4. administration charges: to provide information to your buyer when you sell your property
5. insurance charges: a sum you pay to the freeholder to insure your home or block

Often charges two to five are above are simply called a 'service charge'. Sometimes these charges can increase over time.

Advantages of owning a leasehold property

• you won’t be responsible for maintaining the common areas of the property – for example lifts and hallways
• you won’t to have to organise your buildings insurance – although it might be more expensive as a result

Disadvantages of owning a leasehold property

• when your lease expires you will have to return your property to the freeholder
• you usually have to pay your freeholder annual ground rent
• you have to pay management charges, insurance charges and permission charges
• your lease might mean that rents and charges increase over time
• you don’t have control over the maintenance of the building
• you may be restricted to certain rules
• your lease may be forfeited if you don’t meet your freeholder’s rules
• it can be harder to mortgage your property