Last edited 07 Jan 2021

Leasehold

1 Overview
2 Updates
3 Related articles on Designing Buildings Wiki
4 External references

[edit] Overview

The term ‘leasehold’ in property law describes a lease from the freeholder of a property that enables the leaseholder to use the property for a specified period subject to conditions set out in the lease in return for the payment of rent. At the end of the lease, the premises revert to the freeholder. Leaseholders are sometimes referred to as ‘tenants’.

A leasehold is in contrast to:

A ‘freehold’ in which the freeholder owns the ‘title absolute’ of the property, that is, the land and any immovable structures attached to it, outright in perpetuity. Freeholders may also be referred to as 'landlords' or 'lessors'. Leaseholders are entitled to know the name and address of their freeholder.
A ‘commonhold’, which is a form of property ownership for multi-occupancy properties that enables the collective ownership of the freehold of the property as an alternative to long leaseholds.

Commercial leases are likely to be shorter than residential leases, which can last as much as 999 years. Leases may be assignable (often subject to the consent of the freeholder), which means they can be sold in the open market. If the leaseholder is permitted to sell the lease, its value will reduce as the remaining duration of the lease reduces.

A leaseholder may be able to purchase the freehold (this process is known as leasehold enfranchisement). This can be either by agreement with the freeholder, or for houses or flats, can be by right. A leaseholder may be able to purchase a freehold by right if they have owned the lease to a house for at least two years, or if they own a flat, they may be able to buy it collectively with other leaseholders (see Shelter, Buying the freehold of a house for more information). Leaseholders of flats and houses may also have the right to extend their lease, but this can be expensive.

Leaseholders of flats will also normally have the right of first refusal (RFR) if the freeholder decides to sell the freehold.

Leases can also be converted into a commonhold, but this requires the agreement of the leaseholders, landlords and any lenders, which may be difficult to achieve.

The lease will set out the rights and responsibilities of the parties in relation to:

Rent.
Service charges.
Insurance.
Rent–free period.
Rent deposit.
Alterations to premises.
Responsibility for maintenance, repairs and reinstatement, in particular in relation to the demised premises and the retained parts.
Right to sublet or assign the lease.
Use of premises.
Security
Dilapidations.
Termination of lease.

See Lease negotiations for more information.

[edit] Updates

[edit] 2017

In July 2017, it was announced that the government intends to ban builders from selling houses as leasehold in England. In addition, ground rents on flats could be cut to zero following long-standing controversy about exploitative contracts which have resulted in thousands of housebuyers being caught by spiralling charges. In extreme cases, this has left some houses being virtually unsaleable.

It will still be permitted to sell flats as leasehold, but ground rents will be restricted to a 'peppercorn' level. It is thought that this will render them of little financial value to speculative buyers. The ban is expected to come into force after an eight-week consultation period.

For more information, see Peppercorn rent.

With regard to existing leaseholders stuck with charges, in some cases rents doubling every 10 years, the Department of Communities and Local Government (DCLG) is expected to consult on what it can do to support them. It is thought this could include tackling unreasonable rises and giving householders more powers to fight unfair charges.

Then-Communities Secretary Sajid Javid said; “Enough is enough. These practices are unjust, unnecessary and need to stop. Our proposed changes will help make sure leasehold works in the best interests of homebuyers now and in the future.” He also described some housebuilders as using ground rent “as an unjustifiable way to print money”.

Sebastian O’Kelly, Leasehold Knowledge Partnership, said; “Leasehold houses are an absolute racket: a means by which developers have managed to turn ordinary people’s homes into long-term investment vehicles for shadowy investors, often based offshore. In short, plc housebuilders have been systematically cheating their own customers.”

(Ref. The Guardian)

[edit] 2018

In July 2018, Communities Secretary James Brokenshire announced that "unjustified" new leasehold housing will no longer be funded from new government schemes.

Brokenshire said: "We have seen leaseholders in new-build homes facing unexpected costs rising every year that bear no relation to services and that’s not fair. So from now on, any new government funding scheme will contain the condition that the money cannot support the unjustified use of leasehold for new homes.”

A package of measures to shake up the housing market included new proposals for three-year minimum tenancy terms with a six-month break clause, to try and make renting more secure.