If You Buy Leasehold, Are You Really Buying At All?

Written by Chloe Harwood

There’s a lot of pressure on young people to buy property, particularly in cities like London where property prices are slowly becoming more affordable than they have in previous years. It seems like now or never, and that those able to cobble together a half decent down payment should rush out to but the first half decent property that comes their way whether they intend to buy it to live in or to rent out. Make no mistake there are inherent advantages to property ownership especially in today’s economy and political climates. Interest rates are relatively low across the world in a prolonged effort to stimulate growth in the wake of the great international recession of 2007-2008, and in most countries the private rental sector is desperately under regulated. Indeed, in the UK last year parliament voted down legislation to ensure that privately rented accommodation had to at least be livable. These factors alone would push one into buying a property as soon as they were able… But there are many reasons why you should look twice before signing on the dotted line. Here we’re going to look at the inherent troubles caused when you buy a leasehold property and how if you buy leasehold you never really have the freedom you expect as an owner…

Freehold vs leasehold

If you buy an apartment or any property with shared land you may own the property itself but not the land that it’s on, so it’s always worth recruiting a trusted surveyor to carry out a retracement of the land’s borders. A freeholder owns the property and the land whereas a leaseholder leases the land from the freeholder. Essentially, while you own the property, you’re still renting the land. If you buy an apartment you will likely own the apartment itself but the building itself will be managed by a private company. There are some inherent disadvantages to this such as…

Service charges

Some companies and private landlords charge inflated service charges for very little effort and expenditure in the way of building maintenance. This sector is either completely unregulated or has flimsy regulation in most countries so landlords and agencies are beholden to nobody in terms of what they charge, and if you’re buying an apartment in the building, you’re making a commitment to pay those charges for the length of their lease.

Poor value for money

The freeholder is responsible for the maintenance of communal areas such as halls, stairs, parking lots and elevators and you may see these in a near permanent state of disarray despite paying hefty service charges. Private companies tend to do better as they have professional reputations to maintain but a private landlord may have no legal obligation to ensure that the communal areas are well maintained. If you’re buying to rent this could negatively affect your ability to find or retain a tenant.

Sale fees

Even if you have no complaints from the freeholder throughout your ownership of the property, you may find yourself with some at the point of sale. There will inevitably be legal fees to transfer your apartment’s lease to the buyer as well as any number of rip-off administrative fees. These could but a dent in your overall profit.

Don’t let pressure to buy a property in a favorable climate if its the wrong property for you, especially if it could result in these hidden and prolonged costs.

About the author

Chloe Harwood