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Was hoping someone might explain how leaseholds come to an end, I’ve been googling for ages but seem no closer to finding an answer. Example: Leasehold 50,000 Annual rent 20,000 Free of tie lease 10 years

This seems an ideal form of LH, and one that I have started to look into as a more immediate way of getting started. But at the end of the ten years? What happens? Are you entitled to any of that initial money put down? Should that just be considered a large upfront deposit? Or do you get that money by selling on the LH? Is there any incentive for the landowner to extend the lease another 10 years? Is there another major cost?

I would love any input as I can’t be looking at this correctly. It’s either highly advantageous to the landowner or fair for both?

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    No need to apologise : ) Good question! – marktristan Feb 28 at 15:50
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Any aspects of UK property law specifically about pubs I don’t know, but from having researched domestic leasehold for both personal and professional reasons I can tell you:

At the end of a lease, the property reverts to the freehold owner.

As for being entitled to any money back / the 'deposit' aspect, no there’s none of that. And a lease with no time left to run has zero resale value.

Usually for residential property you would be unwise to consider a leasehold less than 100 years. Below 80 years most mortgage companies would not lend on it.

There's no incentive for the freehold owner to extend the lease – the incentive is very much for them to allow it to expire.

As leaseholder you do get some legal rights to extend your lease – which rights you have depend on the property type, how long you've owned the leasehold, how long it was leased for in the first place, among other issues. Extending the lease is done through a solicitor. However, the cost of doing so typically runs into the thousands of pounds and, crucially, rises exponentially as the lease term runs down.

Fundamentally, with leasehold you are purchasing the right to 'own' a property but for a finite period. Therefore only very long leases have stable value and could be considered an asset in the property market. Short leases are cheap because they are effectively a depreciating asset, and the cost of extending them is rising as their value is falling.

How this applies to the economics of leasing a pub, whether the term / cost / ground rent are normal for the pub business, and whether this deal is good or not, are out of scope for this answer; but in terms of addressing your concerns about the nature of leasehold I hope this is helpful.

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At the end of the 10 year lease, you have two choices:

  • Negotiate a new lease with the freeholder, or
  • Hand the keys back and walk away.

A lease is essentially the right to occupy the property for a fixed period. Once that right ends, you have nothing. That's why you sometimes see "end of lease" sales in businesses. They couldn't reach agreement with the freeholder, and they are shutting down that outlet.

Be aware that some business leases are "maintaining leases". The leaseholder is responsible for all the maintenance on the building, and it must be handed back in as good a state as when it was taken on.

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