Freehold vs Leasehold - Selling

Question

What are the differences between freehold and leasehold houses/flats when it comes to selling?

Answer 1

Some things immediately spring to mind:

• If the remaining lease term is short (75-80 years or less), buyers will struggle to get a mortgage on the property and in turn you may struggle to find a buyer and/or you may have to accept a reduced price. Unless you pay to extend the lease or agree to start the process of doing so and negotiate the costs into the deal (buyers have only got a legal right to a lease extension after owning the property for 2 years and may not want to take a gamble on how much this will cost).

• If there are high service charges and/or ground rents, if these have recently increased or if the lease includes clauses stating service charges will be increased, this may in a similar way deter buyers and/or result in lower offers. There have been some recent cases in the news, where the charges would double every 10 years or so, which made the houses/flats almost unsalable. Should this be relevant to you, it may be worth seeing if these can be dismissed as unfair contract terms, but that would take time and money in courts.

• More commonly, if a lease is involved it adds time to the process. Having solicitors read, interpret, ask each other questions, reinterpret, ask more questions etc. takes time and some buyers/sellers in the chain may be unable to wait, may lose interest and start over on a different flat/house, forcing others to do the same.

• If the lease includes a share of the freehold, the properties are likely jointly owned by the residents/owners, in which case the charges for maintenance or lease extensions are most likely reasonable and much more under the control of the owners. This is attractive to buyers.

As a personal opinion, I would say that while leaseholds are common and thus a known evil - avoid them if you can (why encourage poor practice compared to different countries? - To some extent leasehold can be considered taking out a loan to pay rent in advance), unless there is a share of the freehold, or failing that well over 100 years left on the lease if you plan to stay a while..

Without the share of freehold, they typically complicate things at a cost without benefiting the "owner" (ie. leaseholder); they don't really exist outside the UK. Of course in practice, your choices may be limited in avoiding them.