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Freehold vs Leasehold
While leasehold is a common form of tenure for flats, in recent years it has also become increasingly common for new build houses to be sold on long leases. The practice has attracted criticism, particularly following some well-publicised cases where ground rent is set to double every 5 or 10 years. Doubling ground rent provisions or ground rent increases in line with RPI are likely to make a leasehold property unmortgageable.
In response, the government is now proposing to legislate to stop new houses being sold as leasehold and granting existing leaseholders (flats and houses) the right to extend their lease by a maximum term of 990 years at zero ground rent.
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Leasehold house 999 years
More typically, 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 will always be sold on leases (unless the estate is commonhold). Sometimes the houses will also be sold on long leases in order to maintain consistency of management across the estate.
Buying the freehold of a house
In most cases a leaseholder will be able to buy the freehold of their 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 agreement with the freeholder direct.
Just as with leaseholders of flats looking to extend their leases, the formal route offers more protection to the leaseholder and an option to apply to the tribunal if an agreement between the parties cannot be reached. However, it is likely to be more costly in terms of professional fees.
The informal route would be at the landlord’s discretion and there is no requirement for them to even respond to a leaseholder’s request.
Valuation for buying the freehold of a leasehold house
The legislation which gives leaseholders the right to buy the freehold of their house provides for the process to calculate the premium payable. However, the valuation process can actually be quite complicated due to the various calculation amendments to the legislation since it was enacted. Certainly, it is not quite as straightforward as might be suggested by companies offering an online freehold purchase calculator.
If you are 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. If necessary, we can recommend a freehold valuation surveyor to you.