The ins and outs of leasehold property

You only actually own a property outright if you buy it on a freehold basis (or buy a share of the freehold), in which case your money pays for the property and the ground on which it stands (and sometimes the ground around it).  If you buy a leasehold property then you simply buy the right to use that property for the term of the lease, you do not own it or the ground under it.

The modern history of leasehold If we take modern history as being from the 20th century, then the modern history of leaseholding arguably starts in the 1920s when the UK was in a process of recovery from WWI and was already starting to see population growth.  Selling property on a leasehold basis was a win for landowners as it allowed them to earn what was largely a passive income from their land while still maintaining ownership of it.  The transition to the mid-20th century was marked by World War Two, after which there was a rush to construct new homes partly to replace those lost to bombing and partly to accommodate massive population growth.  These new homes were a mixture of houses and flats.  As a rule of thumb, the former were sold on a freehold basis and the latter on a leasehold basis as it allowed them to be managed centrally.

The first, modern, leasehold scandal Modern leasehold hit the headlines back in the 1960s when it was discovered that (by then) elderly leaseholders were facing eviction as their leaseholds came to an end.  That could have been an opportunity for the government of the time to step in and put a stop to the practice of allowing property to be sold on a leasehold basis but it did not and not only did the leaseholding system continue, it began to be extended to houses as well as flats.  Periodically, issues with it have made newspaper headlines, sometimes causing governments to take some kind of action, such as to introduce the Leasehold and Commonhold Reform Act 2002, but fundamentally the leasehold juggernaut has continued rolling on, until now.

The housing market and housing ministers Perhaps the main reason why nothing much has been done about the leasehold system is that the UK has had a total of 16 housing ministers in the last 20 years, of whom the longest-serving has been Labour’s Yvette Cooper, who lasted a grand total of 32 months and the shortest-serving was Alok Sharma, who lasted a mere 7 months.  With such a rapid turnover of ministers, it is, perhaps, hardly surprising that nobody has got around to dealing with the thorny issue of leaseholds, particularly since there are two sides to every story and both have to be managed.

Leaseholds from a developer’s perspective Building new housing requires a lot of up-front investment and even though the UK has strong demand for housing, houses have to be priced realistically to sell.  What is more, getting planning permission for a new development may depend on a percentage of the houses built being sold as “affordable housing”, the cost of which has to be met in some other way.

The reality for buyers In short, while it may well come about that the leasehold system is abolished at some point in the future, at the present time it is a reality, buyers have to understand.  That being so, it is strongly recommended that buyers take professional legal and financial advice before purchasing any property, particularly a leasehold property, so that they fully understand both the costs and legal implications of the contract, for example any restrictions on what they can do with their new home. Your home may be repossessed if you do not keep up repayments on your mortgage.