Buying a Leasehold Property: What You Need to Know
Thinking about buying a leasehold property? Whether it is your first flat or an investment purchase, understanding the difference between leasehold vs freehold, checking the lease terms, and knowing how leasehold property management works are essential steps before you commit.
What Does Leasehold Mean? Leasehold vs Freehold Explained
When you buy a leasehold property, you are purchasing the right to occupy the property for a fixed period set out in the lease, typically between 99 and 999 years. You do not own the building or the land it sits on. That belongs to the freeholder. Your lease is a contract between you and the freeholder that sets out your rights and obligations, including the payment of service charges and ground rent.
By contrast, a freehold owner has outright ownership of the property and the land beneath it, with no time limit on their ownership. Most houses in England and Wales are freehold, while most flats are leasehold. This is because a block of flats has shared structure, communal areas, and common services that require collective management and funding, which the leasehold system provides through the service charge and the terms of the lease.
Understanding the leasehold vs freehold distinction is the starting point for any buyer. If you are purchasing a flat, you are almost certainly buying a leasehold interest. The quality of the block management and the terms of your lease will have a significant impact on your experience as a leaseholder and on the future value of your property.
6 Key Things to Check Before Buying a Leasehold Flat
Before committing to buying a leasehold property, there are several critical areas you and your solicitor should investigate. Getting these checks right can save you thousands of pounds and prevent serious problems after completion. Here are the 6 most important factors to review.
Remaining Lease Length
Check how many years are left on the lease. A lease with fewer than 80 years remaining will be more expensive to extend due to marriage value, and many mortgage lenders will not lend on leases below this threshold. If you are asking should I buy a leasehold flat with a short lease, the answer is usually only if the price reflects the cost of a lease extension. Read our full guide on lease extensions.
Service Charges and Annual Costs
Request the last three years of service charge accounts and the current year budget. Look at whether charges are rising, whether the accounts are transparent and professionally prepared, and whether the costs are reasonable for the services provided. High or unexplained service charges are one of the key disadvantages of buying leasehold property.
Section 20 Notices and Major Works
Ask whether any Section 20 consultation notices have been served or are planned. Buying a flat with a Section 20 notice means you may be liable for a share of major works costs shortly after purchase. Your solicitor should request a management pack that discloses any planned or ongoing works and associated costs.
The Management Company
Find out who manages the building. A professional, RICS-regulated managing agent with clear communication and transparent accounting is a positive sign. Poor leasehold property management leads to deteriorating buildings, rising costs, and difficulty selling. Check if leaseholders have exercised the right to manage.
Ground Rent
Review the ground rent provisions in the lease carefully. Some older leases include escalating ground rent clauses that can increase the rent significantly over the life of the lease. Under the Leasehold Reform (Ground Rent) Act 2022, ground rent on new leases is restricted to a peppercorn, but older leases may still contain onerous terms.
Sinking Fund and Reserve Fund
A healthy sinking fund is a sign of a well-managed building. Check the current reserve fund balance and whether contributions are being collected regularly. A building with no sinking fund or a very low balance may face large one-off demands for major works in the future.
Our guides on lease extensions, sinking funds and reserve funds, and ground rent management provide further detail on each of these areas.
The Advantages and Disadvantages of Buying Leasehold Property
Why would anyone buy a leasehold property? The answer is straightforward: most flats in England and Wales are leasehold, and flats offer affordability, location, and convenience that many buyers value. But there are genuine pros and cons to understand before you proceed.
Advantages
- Lower purchase price compared to freehold houses in the same area
- Shared maintenance costs spread across all leaseholders through the service charge
- Access to desirable urban locations where houses are scarce or unaffordable
- Building insurance and communal maintenance are managed on your behalf
- Legal rights including the right to manage, lease extension, and collective enfranchisement
- Professional block management ensures the building is maintained to a high standard
Disadvantages
- The lease is a wasting asset that decreases in value as the term shortens
- Ongoing service charges and ground rent add to the cost of ownership
- Less control over the building compared to freehold ownership
- Restrictions on alterations, pets, and subletting depending on the lease
- Risk of large one-off bills for major works if the sinking fund is insufficient
- Potential disputes with the freeholder or managing agent over charges or management quality
The disadvantages of buying leasehold property can be mitigated significantly by choosing a flat with a long lease, reasonable charges, and a competent managing agent. Understanding your leaseholder rights also gives you the tools to challenge poor management and take greater control of your building if needed.
How Block Management Affects Your Leasehold Purchase
The quality of leasehold property management has a direct impact on your day-to-day experience as a leaseholder, the condition of the building, and the resale value of your flat. A professionally managed block with transparent service charge management, regular maintenance, and clear communication will hold its value better and be easier to sell than a poorly managed one.
Before buying, ask the estate agent or seller who the managing agent is and look into their reputation. Are they RICS regulated? Do they provide annual accounts on time? Is there an active residents management company or right to manage company in place? A good managing agent will ensure the sinking fund is adequately funded, deeds of covenant are processed efficiently during sales, and all statutory compliance requirements are met.
Can you sell a leasehold property easily? Yes, provided the block is well managed, the lease has adequate length, and the financial position is healthy. Buyers and their solicitors scrutinise the management pack closely. A building with outstanding debts, unresolved maintenance issues, or a managing agent that fails to provide information promptly can delay or even derail a sale.
At Block, we provide the kind of professional leasehold management that gives both existing and prospective leaseholders confidence. From transparent accounting and proactive maintenance to responsive communication and full statutory compliance, our approach to block management protects the value of your investment and ensures your building is a place you are proud to call home.
Frequently Asked Questions About Buying Leasehold Property
Why would anyone buy a leasehold property?
Many people buy a leasehold property because flats and apartments in the UK are almost always sold on a leasehold basis. Leasehold properties are often more affordable than freehold houses, tend to be in desirable urban locations, and come with the benefit of shared maintenance costs through the service charge. A well-managed leasehold flat with a long lease, reasonable service charges, and a professional block management company can be an excellent investment and a comfortable place to live.
What is the downside of leasehold?
The main disadvantages of buying leasehold property include the ongoing cost of service charges and ground rent, the fact that the lease is a diminishing asset that loses value as the remaining term decreases, restrictions on alterations and subletting imposed by the lease, and the risk of disputes with the freeholder or managing agent. Leaseholders also have less control over the building than a freehold owner, although the right to manage and collective enfranchisement give leaseholders routes to greater influence.
Can you be evicted from a leasehold property?
It is extremely rare for a leaseholder to be evicted, but it is technically possible if the lease is forfeited. Forfeiture can only occur if the leaseholder is in serious breach of the lease terms, such as persistent non-payment of ground rent or service charges, or a major breach of a lease covenant. The freeholder must follow a strict legal process, including serving a Section 146 notice and obtaining a court order. In practice, most disputes are resolved before forfeiture proceedings reach court, and leaseholders have the right to seek relief from forfeiture.
What happens when a 99 year lease runs out?
When a 99 year lease runs out, the property technically reverts to the freeholder. However, most leaseholders extend their lease well before this point. Once the remaining term falls below 80 years, the cost of a lease extension increases significantly because marriage value becomes payable to the freeholder. Leaseholders who have owned their flat for at least two years have a statutory right to extend their lease by 90 years at a peppercorn ground rent under the Leasehold Reform, Housing and Urban Development Act 1993. The key advice is to extend well before the 80 year threshold.
Should I buy a flat with a 90 year lease?
A flat with a 90 year lease can still be a sensible purchase, but you should factor in the cost of a lease extension. With only 90 years remaining, you are approaching the 80 year threshold below which lease extensions become considerably more expensive due to marriage value. Most mortgage lenders also become reluctant to lend on leases with fewer than 80 years remaining. If you are buying a flat with a 90 year lease, negotiate the price to reflect the upcoming extension cost, or ask the seller to extend the lease before completion.
Is it hard to sell leasehold flats?
Selling a leasehold flat is straightforward provided the fundamentals are in order. Buyers and their solicitors will check the remaining lease length, the level of service charges and ground rent, the financial health of the sinking fund, and the quality of the block management. Flats with short leases, high service charges, outstanding Section 20 notices, or poorly managed buildings can be harder to sell. Ensuring your block has professional leasehold property management, transparent accounts, and a healthy reserve fund makes selling a leasehold flat much easier.
Buying a Leasehold Flat? We Can Help
Whether you need advice on buying a leasehold property, want to understand the service charges and management arrangements at a block you are considering, or are looking for a professional leasehold management company for your building, our team is ready to help. Call us today or request a free consultation.