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New Builds – Leasehold

Published: 3rd May, 2017

Do you know what you are Buying?

An item on the Today programme on BBC Radio 4 recently referred to the increasingly common trend for newly built houses to be sold with a leasehold title rather than freehold title.

Traditionally, it has been common for houses to be freehold and flats to be leasehold. The reason is that the underlying lease in a leasehold title will contain various rights and obligations for both the leaseholder and the owner of the freehold which will enable the freeholder to manage the common parts of a building and ensure that the owners of the individual flats contribute.

Over the last few years it has becoming increasingly common for developers to sell houses on new estates as leaseholds and the reason often given is that it makes common areas of an estate (play areas, landscaped areas, etc) easier to manage. If you are considering buying a leasehold title, however, there are various points of which you should be aware.

For example, the lease will contain an obligation to pay an annual ground rent and maintenance charges. Further, there may be provisions for the ground rent and maintenance charges to increase over time. The Today programme gave an example of a home owner who had discovered after buying a property that the maintenance charges and ground rent automatically doubled every 10 years.

A further common example may be that if you want to make any alterations to the property there will often be a requirement under the terms of the lease for a fee to be paid to the freeholder for their permission.

A point of which you should be aware is that when buying a leasehold house it is often possible to buy the freehold for an additional fee and buyers are sometimes not told this. Even if this is not something that is immediately offered, it can often be negotiated as part of the buying process. If you might want to acquire the freehold, however, it is best to consider this at the outset. Another example referred to on the Today programme was of a house buyer who had only discovered after completing his purchase that he could have bought the freehold for an additional £4,500 and when he tried to do so subsequently he found that the price had risen by £10,000.

Leasehold houses may well be appropriate for many buyers, many are whom will be perfectly content with what they buy. If you are thinking of buying a new build property, however, the message is:

• Make sure you are clear about what you are buying. Will the title be freehold or leasehold?
• If the title will be leasehold do you know what the management charges and ground rent will be and can they increase in the future?
• Do you have the right to buy the freehold and, if so, on what terms? Would it be worth considering this to avoid ground rent, management charges and other charges going forward?
• Would the ground rent, maintenance charges and other charges affect the desirability of the property for prospective buyers if you wanted to sell it?

For further advice contact Lynn Wilkinson at LCF Residential on 01423 502211 or