When buying a leasehold property it’s essential you have a solicitor worth their salt. Michael Young of Lime Solicitors explains how to check your conveyancer is up to the job
Recent reporting from the National Leasehold Campaign has highlighted that a majority of leaseholders were not properly advised by their solicitor as to their purchase.
The report reveals that nine out of 10 leaseholders were not explained the difference between freehold and leasehold properly by their conveyancing solicitor when they purchased their new homes.
The fact that the present Government is seeking to ensure that, moving forward, all new homes are freehold highlights the importance of purchasers appreciating the difference.
Leaseholders may not appreciate they will be liable to pick up service charges and ground rents for instance.
The different nature of the property’s title also means that there may be unexpected depreciation in value of the property if the purchase has not appreciated the difference between leasehold and freehold.
Difference between freehold and leasehold
In a nutshell, as freeholder of a property you own it, including the land it’s built on. You are responsible for maintaining the property and land.
With a leasehold, you own the property but subject to the terms of the lease and for the length of your lease agreement with the freeholder. When the lease ends, ownership returns to the freeholder, unless the lease is extended.
What’s required of a leaseholder?
If the lease is for less than 70 years, mortgages generally do not follow or are certainly more difficult to obtain. Lenders will normally need it to run for well beyond the end of your mortgage. It thus becomes more difficult to sell properties with expiring leases.
You do not own the land – the freeholder (or ‘landlord’) does. The landlord will inevitably appoint managing agents to maintain the property and the land, and you will then pay service charges (eg in flat complexes or in gated communities).
‘Slush’ funds sometimes follow as part and parcel of these charges too for costly future maintenance, for instance re-surfacing of communal areas.
Within your own property, general maintenance is likely to be your own issue. However, the terms of the lease may dictate updates to the landlord or might stop you from action you might otherwise do as a freeholder (for instance looking to build an extension).
In short, a leaseholder might go into a purchase thinking they are getting a good deal when in fact they are stepping into a property with ongoing costs, restrictions on treating it as your own “castle” and then finding it is difficult to sell or move on from when so desired.
How a conveyancing solicitor can help
Given recent positioning, the importance of a conveyancing solicitor worth their salt is highlighted. If you are buying a property it is fundamental you go into it “eyes wide open”.
A solicitor should highlight if the property is leasehold or freehold in discussions, and indeed the information is readily available in an estate agency or a property website advertising. Check it yourself too.
Ask your conveyancer regarding issues with the property – are there service charges (these can apply to certain freehold areas too)?
If you are considering a leasehold, ask what is left on the lease and the expected impact of that down the line with sale/expiry, and other charges like ground rent and how those may play out.
As a purchaser, if your conveyancer is not highlighting potential issues, or say you find the property is leasehold but there is not further explanation as to the ins and outs of what this means in the individual case, then alarm bells should ring.
If you ask specific questions in trying to do your own due diligence and the conveyancer doesn’t or can’t answer them, it is time to move on – from the solicitor, and if doubts remain, most likely from purchasing the property.
A property purchase is a life decision. You would not buy an item like a car without knowing exactly what you are buying, so you certainly should not with a bigger ticket item like a house.
Doing due diligence
My recommendation is to do your due diligence and ask questions. If buying a leasehold, go in eyes wide open, knowing exactly what you are taking on.
Indeed with any house, freehold or leasehold, it is fundamental to understand and have full knowledge of exactly what you are buying before you do.
Check it out, ask questions of your conveyancer, they should volunteer answers if they are on the ball in any event.
With the current climate, it is also important to know your options if things are too late. Are you stuck with a leasehold you cannot get out of and sell, paying exorbitant charges at the same time?
Duty of care
Your conveyancer owes you a duty of care. In circumstances where they fall short of that by a complete lack of advice or wrong advice, it may give rise to a negligence position. Here you would likely have to show that with proper advice, you would not have bought and then there may be a case to put you back in the position you would have been in with the correct advice originally.
The outcome might be the true value you should have paid against what you actually paid.
If you feel you have been given incorrect or incomplete advice from your conveyancer and bought a property off the back of that which you would not have otherwise done, it is important to speak to a professional negligence solicitor as soon as possible – although please be aware there are time limits to bring claims (for instance, 6 years from the negligent act/omission).
Michael Young is an Associate at Lime Solicitors
Thank you for this article and citing the NLC Conveyancing Report. Can I please point out that “buying” a leasehold property actually means that the purchaser does not own the land OR the property itself but have in fact purchased a long lease? In effect they are a tenant with a landlord and the lease is funded through a mortgage in most cases.
This fact was not explained to 9/10 people who took part in the NLC survey and is the crux of the problem as all of these would not have proceeded if that explanation had been given to them by their conveyancer.
It is the duty of the solicitor to act on behalf of their client which in these cases should have been the purchaser- it is unreasonable to expect lay purchasers to understand the legalise used in lease documents and interpret the terms for themselves. Due to this , it is also unreasonable for a lay purchaser to know what questions to ask of their solicitor.
It is reasonable to expect a solicitor/conveyancer to carry out the work to a high standard and for which they are being paid for. I agree that buyers need to enter these agreements with their eyes wide open and with all the relevant information but they can only do this with the help of a fully qualified and diligent solicitor.
No leaseholders don’t own the property. They own a lease for the duration of the lease. The freeholder has a superior legal title and owns the building , land and roof and air rights
If you are a Leaseholder you may possibly have the right to buy the Freehold through enfranchisement.
This has to be added:
It needs to be understood that standard LH laws don’t apply if it’s mixed tenure or the majority of other Leaseholders don’t agree with you.
If you’re in this category you have no right to right to manage and no legal protection from the Freeholder who can do and charge whatever he likes, service charges being uncapped in every instance. He/she may not even reply to letters or deal with any aspect of the building. This is an absolute nightmare. This cannot be emphasised enough.
The statement that as a leaseholder you own the property is factually incorrect. The governments “How to Lease” document states that leasehold is a type of long term tenancy and is not the same at outright ownership. It is no different to leasing a car. It is a lease rental for the duration of the lease but with all the associated costs of maintaining the landlords (Freeholder) building. I still find it baffling how the government call it a tenancy yet charge stamp duty to “buy” it and give you a “help to buy” loan on something they call a long term tenancy. Misleading.
https://www.gov.uk/government/publications/how-to-lease/how-to-lease#what-is-leasehold
You are obviuosly a junior Legal Asssociate , your understanding of what is leaseholds is incorrect
Spot the contradiction
With a leasehold, you own the property subject to the terms of the lease and for the length of your lease agreement with the freeholder. When the lease ends, ownership returns to the freeholder.
When actually you do not own a single brick Leasehold just means long-term tenancy and you will be treated in law just a like a tenant: you do not own the land of the building; you do not own the building or any part of it; you own time to occupy a part of it.
Under the section, “Difference between Freehold and Leasehold”, you state:
“With a leasehold, you own the property…”
Please can you correct this to state:
“With a leasehold, you have a right to live in the property per the terms of the lease, but you do not own the property”.
In reality, leasehold is a mortgaged-tenancy. It is not ownership of the property or part thereof.
I am buying a property on a typical housing estate it has an absolute freehold title. However the leasehold documents have been lost, the solicitor selling the property wants to do an indemnity for this problem. My solicitor has advised me not to buy the property with just an indemnity. Any advice