What is a Leasehold Flat?

Darren Bagnall, Managing Director of Flat Living Insurance explains what a leasehold flat or apartment is.

The majority of flats in the UK are bought and sold on a leasehold basis.

Present property law in England and Wales requires that flats be leasehold, although some are sold with a share of the freehold. Legislation introduced in September 2004 does allow a new form of tenure called Commonhold, which is very popular in the States, but still rarely seen here.

Overall a good lease and a well-managed property is a good investment and a great way to live as long as you appreciate your rights, obligations and benefits.

What is a Leasehold Flat?

Leasehold flats can include purpose-built blocks, converted houses and converted commercial properties like hospitals and hotels.

Buying a property on a leasehold basis means that you are buying a very long tenancy; basically the right to live in and have use of the property for the term of the lease which is usually 99 or 125 years.

The flat can be bought and sold during the lease period but the length of the lease that is remaining will affect the value and saleability of the property.

Leasehold ownership relates to everything within the flat including the internal walls and floorboards- the full details will be contained within the lease contract.

The structure and the land that the building stands on is owned by the freeholder who is usually also the landlord. The freeholder will be responsible for ensuring the building is appropriately maintained and insured while you would be responsible for the internal upkeep of your flat as well as contents insurance.

What Happens at the End of a Lease Term?

If you have a leasehold flat, it’s important to understand that you do NOT have ownership of it. What you have purchased is the right to rent your flat or apartment at a low (ground) rent for a period of time. At all times the ownership of the property remains with the freeholder (landlord).

When a lease runs out, you no longer have tenancy, and the freeholder has full use of the property again.

However, as a leaseholder you do have quite a few rights, including:

• The right to extend the lease (which is much cheaper to do when the lease is still quite long)
• The right to pre-empt the sale of the freehold if the original freeholder puts it up for sale

What do You Pay When You Extend Your Lease?

The cost is directly tied to the value of the property as well as the length of the remaining lease.

Once the lease falls below 80 years, the landlord is entitled to receive 50% of the increase in property value when an extension is granted; known as “Marriage Value”. This is what hugely increases the costs of extending shorter leases. For example, if a property is set to gain £20,000 in value from a lease extension, £10,000 of this must be paid to the landlord during the renewal.

Other costs to be considered include legal expenses for solicitors and surveys- and leaseholders pay the freeholder’s fees as well as their own.

There will be Stamp Duty Land Tax payable (if the premium is over £125,000), as well as Land Registry fees and other disbursements such as search fees.

The ultimate cost will depend on a number of factors including the complexity of the transaction, how long it takes and, importantly, whether or not it is necessary for the matter to be referred to the First-Tier Tribunal.

Do I Really Need a Specialist Lease Extension Valuation?

In a word, yes. We always recommend that a full valuation be carried out by specialist surveyor with experience in lease extension valuations.

Desktop valuations are an alternative, cheaper option but they will never be as accurate as a full, in-person inspection. There are online calculators which do have some use in giving you a rough approximation of the kind of premium you are looking at but this should only ever be used as an initial guide.

Head to our website for details of the policies Flat Living Insurance offer. You can also find details of our sister companies Manage Your Block and Block in a Box– tools specifically designed to make the lives of RMC directors simpler and easier.

For any additional information call our team on 0333 577 2044