When paying hundreds of thousands of pounds for your new home you would expect to own it outright, wouldn’t you?

Unfortunately, that is not always the case.  Some of the larger housebuilders are selling properties on a long lease, meaning that you will only own the property for the length of the lease term and you will own it on a leasehold basis, rather than owning the freehold.

Most houses are freehold.  A freeholder owns the house outright, including the land upon which the house is built.  However, some houses are leasehold.  A leaseholder owns the house and land for the length of the lease only.  As a leaseholder you will usually pay ground rent to the freeholder, comply with various obligations and covenants and may even have to apply to the freeholder for permission to make changes to your home.  At the end of the lease, ownership of the property returns to the freeholder, unless you can reach an agreement to extend your lease or buy the freehold from the freeholder.  The law does provide for a leaseholder to force the freeholder to sell the freehold to them (or extend the lease), although the cost of this must be borne by the leaseholder.

Increasingly with some new build houses,  housebuilders are now selling homes as leasehold, with buyers being assured that they will be able to purchase the freehold at a later date, for a reasonable sum.  Housebuilders are then completing the developments and, once the last house has been sold, the housebuilder transfers the freehold interest in all the properties on the development to a freehold investment company.  The housebuilder does not tell you when this is done nor do they give you an option to buy the freehold first.

Whilst the freehold transfer will not have a big practical impact on your day to day ownership (you pay the same rent and have to comply with the same provisions under the lease) the freehold investment company may see this as an opportunity to make a profit on its investment and the price they charge for the freehold interest may be considerably higher than  the price you were advised it would be at the point of purchase.  If the cost of buying the freehold or extending the lease is too high it may put off a potential buyer and may affect your ability to sell the property on.

If you are offered the freehold and you feel the price is too high, you do have the right to challenge this through the First-tier Tribunal.  However you would need to factor in the costs of challenging the price and then decide whether it is worthwhile.

For further information about leasehold properties, or to discuss any other aspect of residential conveyancing, please contact Thursfields Head of Residential Property, Louise Jones, on: 0121 796 4021 or at ljones@thursfields.co.uk

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