Buying a Freehold Property
If you own a freehold property that means that you own it outright and that no-one else apart from any co-owner or mortgagee, has any interest in the property. You are free to sell it or give it away without needing anyone’s consent. It will pass to your next of kin or beneficiaries upon your death. Whilst you have a mortgage on the property then should you be unable to pay the mortgage at any time then the mortgagee does have a right to repossess the property and sell it but once that mortgage has been paid off then the property is entirely yours.
One area that sometimes confuses people is that your title to the property may be subject to what are called restrictive covenants. These are covenants that were imposed at some stage when your property or the land on which it stands was sold on a previous occasion. The covenants prevent you from doing certain things at the property. For example, one may say that the house can only be used as a private dwelling and that you cannot carry on a business from there.
There are also sometimes covenants that require you to obtain consent of a third party before you do some work to your property, for example extend it. This often prompts the question of why you need someone else’s consent if you own the property. The answer quite simply is that those covenants will have been imposed to protect the amenity of land owned by the seller at the time the covenants were created.
Buying a Leasehold Property
A leasehold property usually exists where you have a number of properties sharing a common facility. If you think, for example, of a house converted into a number of flats it is very difficult to accurately divide it and establish boundaries. There is also a need to ensure that each flat owner cannot tell another flat owner to, for example, repair a roof when there is no direct contractual relationship between them. For that reason what normally happens is that the main structure of the premises and any shared areas are owned separately by the freeholder who then agrees within each lease that he will maintain those areas provided that the flat owners pay their service charge. Some leases are very long indeed, for example 999 years and you may have heard the phrase virtual freehold.
Other leases, however, can be very much shorter and it is important to ensure that the number of years remaining on the lease that you are considering purchasing is acceptable to your mortgage lender. Normally mortgage lenders prefer a remaining term of at least 70 years and, moreover, you also need to think about the position when you come to sell if your lease term has reduced further. You may need to approach the freeholder to talk about extending your lease. You should bear in mind that this may be costly and if the freeholder refuses although there is a statutory extension procedure it is time consuming and expensive.
In addition to the fee that you will pay for maintenance of common areas you will also be responsible for a share of the landlord’s premium for insuring the building. On top of this there may also be a ground rent which, is a fixed yearly sum payable to the landlord which may or may not have a facility for increase in due course.
In the same way as a freehold property may have restrictive covenants, a lease will certainly include a very long list of covenants to govern your use of the property. The covenants will ensure for example that you do not undermine the structure of the building in any way and that you cannot alter in any significant way without the Landlord’s consent or cause nuisance to your neighbours among many other things.
You should also be aware that there may well be restrictions upon selling and underletting the premises and there may be detailed provisions that your solicitor has to comply with when the property is sold which may attract fees. Certainly, when your solicitor sells the property on your behalf you will need to supply a management pack giving detailed information collated by the landlord to your buyers which you will have to pay for.
Shared Ownership of a property
Shared Ownership properties are generally leasehold and work on the basis of your owning a 50% interest in your property which is generally achieved via a leasehold mechanism and then paying rent for the remaining 50%. You have an option to “staircase” at various stages of the lease which involves paying a further premium to your landlord to acquire up to 100% of the leasehold interest. If the property that you are leasing is a house then there is also often the facility to purchase the freehold.
Retirement Leasehold Housing
These are leases where there is a specific requirement that the property can only be occupied by the over 55s. Other than this they work in exactly the same way as other leases but the service charge can often include the provision of an on-site manager. This type of lease, however, does need to be checked very carefully by an expert solicitor as they can attract hefty “transfer” fees when the time comes for you to sell.
Speak to our conveyancing solicitors for expert advice
Talk to our team of conveyancing solicitors for expert advice on dealing with freehold and leasehold property, shared ownership and retirement property. Contact our team today for plain English advice on what can be very complex documentation.
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