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June 22, 2010
What do Long Leaseholds mean for purchasers?
Of all the intricacies of the London property market, the long leasehold may be the most unusual. Even some areas in the UK don’t feature this anymore, much less in other countries. Long leases started in the Victorian era when wealthy land owners started to divide their land up to farmers for cultivation. Not wanting to lose their large estates, the land owners gave the farmers long leases, usually between 125 and 999 years, at nominal rates called ground rents.
In London, long leases can be quite common. Some of these long leases are still large estates wanting to keep the larger property whole, at least nominally. Others are developers who have built large buildings and sell the individual flats on long lease. It would be impractical to sell a freehold of part of a building only, especially if the owner had to access it through common parts. What the long lease provides is a way for an occupier to effectively own a property without breaking up the building as a whole.
At first glance, however, long leaseholds can be off-putting to purchasers. Psychologically, you may not like the idea of buying something and not actually owning it. Long Leases are bought and sold in single transactions just like freeholds and leave the property largely in the control of the purchaser, though he does not technically own the property. Leaseholders can also resell their lease just as easily as they bought it in the first place. One thing to be wary of, however, is that anyone intending to do major refurbishment works will need permission from the freeholder, who may ask for a premium in exchange for permission. Conversely, the freeholder may be able to get planning consent to add an extension to the building, which could affect the value of your leasehold and cause personal problems as construction work is being done. Finally, someone planning hold on to a property for multiple generations should be cautious about buying a property on long lease.
However, the number of people who would be hindered by a long lease is smaller than many might expect. While many people may hope to pass their house on to their children, it may be wise to consider how likely this will be. How long you really intend to stay in a property is a question that should be taken seriously and objectively. How long will you need to hold on to the property to make a long leasehold unviable? Most banks will give a loan to any long lease of more than 80 years, so resale of a property with 100 years or more on it won’t be a problem. If you are a young professional purchasing a flat, then I doubt you will have any hindrance by a long leasehold. If the lease if for 500 years or longer, then I can see very few problems possibly arising. Make sure the property is in good condition and you or the freeholder won’t want to make any significant changes to the property. After that, there is really no problem with a long lease aside from the unfamiliarity.