With residential leasehold property the leaseholder only effectively owns their interest in the property and its associated rights for a fixed period of time. There will a lease agreement with the freeholder who owns the land/property outright. This lease will be for a set period of time which obviously then starts to reduce, and ultimately if the lease were allowed to run down completely ownership of the property returns to the freeholder on expiry.
Most flats are leasehold. Although rarer, houses can be also leasehold, this can be prevalent in certain parts of the country where leases have historically been used, and is certainly likely to be the case if they were bought through a shared ownerships scheme.
Amongst other things the lease will set out:
- If the leaseholder needs the freeholder’s permission to make certain alterations.
- How much the leaseholder will have to pay to maintain the property, by way of ground rent (normally a small fixed annual sum) and service charge (which can fluctuate according to expenses required for the upkeep of the building as a whole).
- Who has responsibility for certain issues such as repairs and dealing with noisy neighbours.
A leaseholder can, subject to certain eligibility criteria, ask the landlord to extend their lease by:
- 90 years on a flat.
- 50 years on a house.
There is of course a price to be paid to the freeholder for any extension of the lease, and the Leasehold Advisory Service’s (LAS) lease extension calculator provides a useful guide to how this is calculated. Generally speaking the less time there is left on the lease, the more expensive it will be for the leaseholder to extend it.
Clearly a leaseholder will never want to let their lease run out, so needs to address this well before that happens. If they do not do so, then if the lease expires then the property reverts back to the freeholder lock, stock and barrel. In addition the leasehold property will become much harder to sell, buyers will be reluctant to buy a leasehold property with a dwindling lease, and mortgage companies will be unwilling to lend. A leaseholder should ideally not let the remaining term of their leases drop below 80 years.
Furthermore, leaseholders will often want to acquire the freehold, so they have more control of all aspects of the property, especially if they live there. As such, in addition, and again, subject to certain eligibility criteria, the law allows leaseholders to ask the freeholder to sell them the freehold. There are different legal steps and rules depending on whether the property is a flat, in which case clearly each leaseholder can only buy a share of the freehold as opposed to a house for which they may be able to acquire the whole freehold. Again, of course, there is generally a price which needs to be paid by the leaseholder(s) to the freeholder in order to acquire their interest.
So what has changed?
Well, with both lease extensions in relation to flats, and buying the freehold in relation to houses, previously the applicant had to have owned their leasehold interest for at least 2 years before they became eligible. Clearly this was far from ideal for the leaseholder, particularly if depending in their circumstances, for example they require a quick sale.
From 31 January 2025 the two-year ownership requirement on leaseholders no longer applies, both to claims to buy the freehold or to seek a lease extension, whether that be for a flat or a house. The prescribed forms of notice which the tenant must serve to start these processes have also been altered to take account of the change to the law. It is important to note that under any of these procedures, the relevant notices have to be served on the freeholder by the legal owner of a lease, as such appears that a tenant who acquires a long lease must first be registered as proprietor of that lease before making a claim for the freehold or new lease. Clearly this is still good news for the tenant as their registration as the owner will almost always take place much sooner than 2 years.