When to buy the freehold

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So you have bought a leasehold house, however that does not mean that you own it forever in the same way as if you had bought a freehold house.

It is rare to buy a leasehold house outside of Prime Central London, however if you have then you may qualify to force the Freeholder to sell you the freehold interest at the market price.

You will know if you own a house on a leasehold basis as the lease will show an expiry date with a number of years remaining with an annual ground rent payable to the Freeholder as they own the land and the building in which your lease gives you the right to occupy until the expiry date.
At the end of the lease the right to occupy the house in law is transferred back to the Freeholder, this means that there is a potential problem to deal with now if you have bought a house with say 100 years remaining and you are not planning to sell the house within the next fifteen or twenty years before the lease drops below 80 years remaining, as this is the point whereby the cost of buying the freehold substantially increases (even if the lease drops below eighty years remaining by a single day).

You have the right as a Leaseholder to buy the Freehold at a fair market price (and to buy out your annual ground rent) under The Leasehold Act 1967 and various subsequent legislation (in certain circumstances you can elect to extend the lease by 50 years at nil premium but with a modern ground rent payable on an annual basis which can be a substantial amount of money, in the majority of cases it is more profitable for you to buy the Freehold interest as soon as possible, even if you have say 96 years remaining, as local increasing property values in the future will increase the cost of buying your freehold).


If you’re a leaseholder, buying the freehold is like a ticking clock. Timing is everything.


You may have problems selling your house with even 85 or 90 years remaining as any knowledgeable buyer or their solicitor will point out that the buyer will have to deal with the issue of the lease extension before it drops below 80 years remaining, as if they do not, then the open market value of their house with vacant possession will decrease as the lease gets shorter. There is also an additional problem that many mortgage lenders may not lend to your buyer with a lease below 80 years remaining which will limit the appeal to any buyer needing a mortgage.

You can qualify to buy the freehold of your house at any point before the lease expires, however the shorter the lease, then the more expensive it will be, especially for houses with less than twenty years remaining, qualification rules are more complicated than extending the lease of a flat, whereby historic rateable values from as far back as the 1965 rating list can affect the basis of the amount of compensation payable to the Freeholder in order for you to buy the freehold. This is why it is imperative to employ the services of a specialist solicitor in order to make sure your legal claim is valid.

Considering action? It’s recommended that you talk with a Chartered Surveyor who specialises in advising upon the fair cost of buying the lease extension or freehold. They will also deal with the subsequent negotiations with ‘the other side’ in order to reach a fair price, but the sooner you take action, the cheaper it will be.

Words:
David Goldstone
www.capitalleasehold.co.uk