Buyers Beware of Leasehold Pitfalls
As with many others in England and Wales, you have just purchased your dream home, which happens to be Leasehold. While most Leasehold owners will have no issues, the upward trend in Leasehold properties has seen some buyers dream homes become a nightmare.
When you purchase a property, you either own the Freehold or the Leasehold. If you own the Freehold, you own the property and the land it sits on, and subject to planning rules, you can largely do whatever you like with it. If you own the Leasehold, you have the right to live in the home for as long as the Lease allows, but someone else owns the Freehold. You will likely have to pay rent and service charges to the Freeholder. In addition, you will have to seek permission from the Freeholder before making any major, or in some cases minor, alterations to your home.
Buyers will often be assured by the developer that they will be able to purchase the Freehold after 2 years and that this should cost between £2000 – £4000. However, buyers beware, the developer can legally sell the Freehold at any time without your knowledge. Your new Landlord may not agree with this valuation and we are hearing of Leasehold owners being offered the Freehold for 10 times greater than the amount the developer initially advised.
You are able to bring the matter before a Court if you disagree with the value of the Freehold and the Court will determine this, but this can often be an expensive venture.
You should also be aware of costly rent reviews. Under the Lease, you will likely have to pay ground rent to the Freeholder and this will increase over a set period of time. Your solicitor should explain how and when the rent will increase and you should consider whether you believe these increases are reasonable before purchasing the home. In particular you should look out for rents which double periodically, as, these can quickly become very expensive and could put potential future buyers off your home when you come to sell.
It is estimated that Leasehold properties make up 43% of all new-build registrations and that over 80% of all properties in Newcastle City are Leasehold. The vast majority of these will not have any issues with their home, but it is always wise to keep in mind the above pitfalls.
If you require any advice on purchasing the Freehold or a Leasehold home, please contact our expert property team who would be happy to help.