Why Would Anyone Buy a Leasehold Property?

Leasehold properties are attractive for those looking to let out their property. Flats and apartments are popular with renters, especially in locations such as university cities. Many prospective landlords purchase multiple leasehold properties in the same building. They then benefit from several rental incomes.

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Compared to freehold, leasehold properties are usually cheaper to buy. This is because they are typically flats and apartments. This means they are more affordable for first-time buyers and those on a budget. Lower-priced properties will usually come with cheaper conveyancing costs and surveying fees. However, it is important to note that leasing a property comes with additional charges such as maintenance fees.

Read more on Freehold vs Leasehold: What's the Difference?

You are responsible for the maintenance of your property. The freeholder arranges work that needs completing in the communal spaces. This includes construction work for the whole building, the exterior walls and utility issues. This can save leaseholders money if major repairs are needed.

Since you do not own the building, you will not have to pay buildings insurance in most cases. This is the freeholder’s responsibility and they must carry out the administrative duties. It’s important to note that this insurance is not guaranteed to cover your belongings. Therefore, it is best to take out contents insurance.

Leasehold properties are typically found in high-demand areas such as city centres. This makes them an ideal option for those wanting to live in busy locations with access to amenities. Living in the middle of expensive locations like London or Edinburgh is a major draw for buyers.

Thanks to the cheaper price point of leasehold properties, the tax thresholds are typically lower as well. In most cases, first-time buyers can avoid paying Stamp Duty Land Tax (SDLT) if the property falls under the threshold. This can save buyers a huge sum of their fees.

A common addition to many apartment buildings is the range of communal facilities. These depend on the building but can include gardens, gyms, and lounges. It is the freeholder’s responsibility to maintain these areas.

A lot of buildings that house leasehold properties may come with designated car parks. This is ideal for those moving to city centres where parking is guaranteed with freehold properties. Keep in mind that there may be an additional charge to use a space.

The Leasehold and Freehold Reform Act 2024 now prevents freeholders from charging ground rent. Ground rent was a fee charged by the freeholder and was a major caveat for potential buyers. This has been amended to charge leaseholders ‘peppercorn rent’, meaning they cannot apply this fee to new buyers.

Collective enfranchisement is the legal process when leaseholders purchase the freehold. To proceed, at least 50% of the leaseholders must agree with the sale. This has been in place since the Leasehold Reform Housing & Urban Development Act 1993 was passed.

Read more on How Much Does it Cost to Buy the Freehold of a Leasehold House?

When buying a leasehold property, always check the length of the lease. If the lease is less than 80 years, you must pay a premium to the freeholder to extend it. This is called a lease extension and can cost between £7,000 to £10,000. The cost depends on the property value and the length of the extension.

Use our lease extension calculator to find an estimate of how much this could cost.

The freeholder has the right to include a Deed of Covenant in the leasehold contract. These are restrictions that can result in legal action if broken. Common covenants include:

• No pets
• No subletting
• Ban on using the property for commercial and business purposes

You should consult your solicitor on the next steps if there are covenants you wish to challenge before signing the contract. It’s also important to note that not every freeholder will include covenants in the contract.

The conveyancing process is longer with leasehold properties. This is due to the additional documents required which are contained in a leasehold management pack. Most leasehold-related documents are submitted by the freeholder or managing agent. This can take a while, especially if the buyer challenges any of the terms in the contract.

The LPE1 Form, also known as the Leasehold Property Enquiries Form, is submitted for most leasehold purchases. It is submitted by the freeholder or managing agent and permits the leaseholder to proceed with the purchase.

This form will include any covenants such as pet restrictions. It will also detail fire safety and any work that must be conducted within the property. This form is often used as a reference in property disputes.

The LPE2 Form is often referred to as the Consumer Summary Form or the Buyers Leasehold Information Summary. It is also completed by the freeholder or managing agent alongside the LPE1 Form. This form contains maintenance costs and the cost of the compliance certificate. It also details the leaseholder’s responsibilities.

Both the LPE1 AND LPE2 forms can be downloaded here.

Maintenance and service fees are ongoing charges that include any repairs and work in communal areas. They are split equally between the leaseholders or apportioned depending on size of the property and usage.

A refusal to pay any charges on time could result in neighbourly disputes as well as a dispute with the freeholder. Therefore, it’s best to consult a solicitor should you wish to challenge the fee.

Unlike freehold purchases, there may be restrictions on property renovations. Any limitations will be outlined in the lease. If you sign the contract and want to renovate your home, you’ll have to receive written permission from the freeholder. This can be a time-consuming process.