Long Leasehold – I am about to purchase a flat (apartment) in a block and I find that I am purchasing a Long-Leasehold interest in the property – what is this?
Property buyers in England & Wales may purchase a freehold or leasehold estate in a house or the leasehold of a flat. They may also purchase the leasehold estate in a flat with a share in the freehold of the block. Since the Leasehold and Commonhold reform Act 2002 it is also possible to purchase a Commonhold interest within a freehold estate in the commonhold.
With leasehold flats, the building, and the land owned by the freeholder (known as the landlord/lessor), is granted to a lease owner (lessee or tenant), giving a right to use the property for a period of time – usually between 21 and 125 years.
The Long Leasehold system, which developed from ancient feudal land law, is nearly unique to England and Wales allowing individual (landlord) control, as opposed to most apartment blocks in other parts of the world, which operate on a collective or common ownership (cooperative, commonhold or condominium) control principle.
Although long-leasehold might have a lot in common with freehold (you pay only marginally less than a freehold price to purchase a long-leasehold interest, albeit with an annual ground rent and services charges) in practice you purchase a diminishing asset. As the term expires its value gradually diminishes until it ultimately has no value at all – it “falls in”.
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 stucture, 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.
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 aquire a freehold interest in the building.
By Tom Entwistle,
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©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.