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.