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Article: People are often
confused when buying a flat (apartment) especially
foreign buyers in England and Wales when they discover
that what they are actually getting is not the full
freehold title to their property but a leasehold
interest which has a limited life left on the lease
- perhaps 75 years for instance.
In other words, they are not the owners of the flat
with a steadily appreciating asset, but a tenant who has
purchased (usually for not great deal less money than a
freehold) a diminishing asset, with service charges
and annual rental to pay to boot.
It's a system that is pretty well unique to England
and Wales with a history in land law going back to
William the Conquerer.
In most other countries apartments are either rented
from the owner, or wholly owned in perpetuity and the
owner is also a joint owner of the building (block) by
way of a cooperative or condominium arrangement.
In fact there have been good reasons for this form of
ownership over the centuries, but in modern times,
though the principles still very much apply in practice.
There have been reforms and changes in recent years in
the form of Leasehold Reform and the
Commonhold and Leasehold Reform Act 2002.
The principle of the Long-Leasehold system is
that the owner (landlord) retains control of the whole
building, being able to manage, insure and maintain the
whole, the external structure, common areas, services,
and grounds, paid for and charged to the leaseholders
(tenants) through service charges. In addition,
in it's pre-Leasehold Reform days, full control of the
whole building was retained for redevelopment.
Human nature being as it is, it is almost impossible to
impose an effective maintenance and repair regime in a
block where individual freehold owners are involved:
some would maintain diligently, others would pay nothing
until the block falls down. It requires the
discipline of a single owner (or his managing
agents) or of a management committee, in the case
of Commonhold, to manage efficaciously.
As the leaseholder is in a landlord / tenant
relationship there will always be rights and
obligations to a higher landlord who has the
greater interest. What might be surprising to many
is that the freeholder (landlord) often has a small
financial stake in the building (he purchased ground
rents) compared to the individual lease holders.
Why, you may well ask, should anyone purchase the
leasehold as opposed to the freehold of the building?
Quite simply, in most cases the freehold estate is
not for sale, or for other complex legal reasons it
is impossible to acquire a freehold interest in the
building.
If you are considering purchasing a flat it's as well to
understand the legal implications of this, the
nature of the ownership and your rights and
responsibilities.
Long leasehold is quite simply a long-term tenancy which
you can purchase pretty much as you would a freehold.
Some leaseholds apply to individual houses (in
certain areas of the country, particularly the North
West and Wales) which are commonly as much as 999 years,
usually dating back to the 19th Century. If you purchase
a 999 lease from 1896 with a ground rent
of say £2.50 then you have what is known as a virtual
freehold. The length of lease is such that it's
pretty much irrelevant to the owner.
However, a flat or apartment in London, with a lease of
say 60 years, going for say £450,000, is a different
kettle of fish: here the value of your asset will
diminish to such an extent that in 30 years time,
where it not for property price inflation, it
will be worth a lot less.
In practice, with leasehold reforms, the
leaseholder will almost certainly have the right to an
assured tenancy should s/he outlive the lease,
but of course the rental will then be significant.
The landlord may be an individual or a company, a local
authority or a housing association. With leasehold
reform (Right to Manage) it's now possible for
the leaseholders in the building to join together and
take over the management of the freehold of the
building. This is done through a management company
run by the residents - they will not actually own the
freehold but will manage the building and effectively
become their own landlord.
The
Leasehold Advisory Service (Tel: 020 7490 9580) can
help in these matters
Note: never rely totally on these standard
answers. Before taking action or not, always seek
professional advice with the full facts of the case and
all documents to hand. LandlordZONE.co.uk
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