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“We are residential long leasehold specialists. Should you have any questions on leasehold houses or leasehold matters more generally, contact us on Freehold vs Leasehold
With freehold property, you own the building, the land it sits on, and the air space above. In contrast, a leaseholder owns the property for a ‘term’ of years – typically 99 or 125 – but not the land it’s built on.
Leasehold is the normal tenure for flats. However, it was increasingly common to sell new build houses on long leases in recent years. But, understandably, this practice attracted considerable criticism. In many cases, some of them well-publicised, the ground rent doubled every 10 or 15 years. Such ground rent provisions make a leasehold property unmortgageable and unsaleable.
Ground rent scandal
The government’s response to this “ground rent scandal” was the Leasehold Reform (Ground Rent) Act 2022 (“the Act”). From 30 June 2022, the Act abolished ground rents on all new long leases of houses and flats. However, there are exceptions and the ban does not apply to:
- retirement homes until at least the spring of 2023.
- existing leases or leases granted under contracts exchanged before the law changed on 30 June 2022.
- home finance plan leases.
- statutory lease extensions.
- community housing leases.
Before the Act came into force, the Competition and Markets Authority secured undertakings from several major housebuilders, including:
- Crest Nicholson
- Persimmon
- Redrow
- Aviva
- Countryside Properties
- Tayor Wiimpey
- Miller Homes
- Vistry
Leaseholders who bought properties from these developers saw their ground rents returned to the base rate at the time of purchase.
The government plans further extensive reform of the leasehold sector, including:
- abolishing “marriage value“; and
- granting existing leaseholders the right to extend their lease by a maximum term of 990 years at zero ground rent.
“The insights that you provided have been very helpful and confidence boosting.” MG
Leasehold house 999 years
Often, however, owning a leasehold house is not a particular problem. Many have lease terms of 999 years at a nominal ground rent and the lease clearly details each party’s obligations. In such cases, the house is mortgageable and has a similar value to a freehold house.
If a development contains a mix of flats and houses, the flats are always sold on leases. (The very rare exception is where the estate is commonhold.) Sometimes the houses are sold on long leases to maintain consistency of management across the estate.
How to buy the freehold of a house
In most cases, you can buy the freehold of your leasehold property. There are two possible routes:
- The formal route. Subject to meeting the criteria, a leaseholder has a statutory right to buy their freehold under the Leasehold Reform Act 1967.
- The informal route. By direct agreement with the freeholder.
Just as with leaseholders of flats looking to extend their leases, the formal route offers you:
- more protection; and
- an option to apply to the tribunal failing agreement.
However, the formal route will likely cost more in terms of professional fees. But, the informal route is at the landlord’s discretion, and they can ignore your request.
Valuation for buying the freehold of a leasehold house
The legislation giving leaseholders the right to buy the freehold of their house is the Leasehold Reform Act 1967. But over the years, the law has been amended, complicating the rules for calculating the price (known as the “premium“). Certainly, it’s not as straightforward as suggested by various companies offering online “freehold purchase calculators“.
If considering buying your freehold, either by the formal or informal route, we strongly suggest that you first seek the advice of a suitably experienced surveyor to undertake a valuation. Your choice of surveyor is important and we are always happy to recommend one to you.
