Whilst the majority of houses in the UK are sold freehold (that is, the buyer has complete legal ownership of the property and land), almost all apartments in England and Wales are sold leasehold, where the buyer owns the property, but not the ground on which it stands. The freeholder owns the site and charges the leaseholder (apartment owner) an annual ground rent. The leaseholder must also pay an annual service charge to the freeholder to cover the maintenance and repairs of the building and its common parts.
Leasehold ownership of a flat gives the property owner the right to occupy and use the flat for the 'term' of the lease - usually 99 or 125 years. When the lease expires, the flat reverts to the landlord. When buying a leasehold apartment, the most important consideration is the length of the remaining lease, particularly if it has less than 50 years to run, in which case you may have difficulty obtaining a mortgage. Experts advise against buying a property with less than 75 years to run.
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| The leaseholder usually owns everything within
the four walls of the apartment, but not the external or structural
walls. The structure and shared parts of the building and the land it stands on are owned by the freeholder, who is responsible for the maintenance and repair of the building. |
Extending Your Lease
The majority of leaseholders now have a right to extend their lease by 90 years and have their ground rent abolished. To qualify, you must own a lease which was at least 21 years long when it was first granted (this is termed a 'long lease') and you must have owned your flat for a minimum of 2 years.
Buying the Freehold
Since 1993 when the Leasehold Reform, Housing and Urban Development Act became law, leaseholders have had the right to buy the freehold between them, called a joint freehold, and many apartments are now sold not with a lease, but with a share of the freehold.
The formal procedure for Collective Enfranchisement can be long and complex, and it is recommended that you obtain advice from an experienced solicitor before proceeding. However, the basic requirements are as follows:
- The building must contain two or more flats and should normally be self-contained
- No more than 25% of the internal floor area to be in non-residential use
- Two thirds of the flats must be let to qualifying leaseholders:
- Must have a long lease (at least 21 years long when it was originally granted)
- Must not own more than two flats in the building
- Must not be a business or commercial leaseholder
- At least 50% of the qualifying leaseholders must be prepared to participate. However, where there are only two flats in the building, both leaseholders must participate
For example, in a building of 90 flats, two thirds (60 flats) must be owned by qualifying tenants. At least half of all the flats must agree to participate; in this case 45.
Commonhold
Under a new type of ownership for apartments called commonhold, leaseholders have the right to buy the freehold and establish a commonhold association to manage the common parts of a property. It allows freehold ownership of individual flats, houses and non-residential units within a building or an estate. Ownership is not limited by time as it is with a lease.
The procedures for purchase of a commonhold unit are often simpler than for a leasehold flat; there is no diminishing term or ground rent to consider and a great deal of the necessary documentation is readily available to the purchaser through the Land Registry and Companies House. However, all the documentation will still require careful examination and, in most cases, professional advice from a solicitor.
- Check that the Commonhold Association is registered properly as a company.
- Examine the Commonhold Community Statement carefully (the document setting out how the building is managed and what rules are in place relating to the use and occupation of the units and the common parts).
- Find out if the unit you intend to buy has any outstanding arrears to the Commonhold Association; you may become liable for them on completion of purchase.
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