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Last edited 02 Nov 2023
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.
The lease will set out the rights and responsibilities of the parties in relation to:
- Service charges.
- 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.
- Termination of lease.
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.
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)
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.”
In Junuary 2021, the government announced reforms ot make it easier and cheaper for leaseholders to buy their homes, with millions of leaseholders given the right to extend their lease by 990 years. The changes will mean that leaseholders who choose to extend their lease will no longer pay any ground rent to the freeholder. Ref https://www.gov.uk/government/news/government-reforms-make-it-easier-and-cheaper-for-leaseholders-to-buy-their-homes
The Leasehold Reform (ground rent) Act 2022 came into force on 30th June 2022 and impacts ground rent charges for new long residential leasehold properties, effectively preventing them from being charged by freeholders of leasehold properties. The new Act refers to regulated leases, which are residential leases for a house or flat granted after 30th June 2022, for more than 21 years and thus covered by the Act. There will be no requirement to pay ground rent or administrative lease related costs in relation to these regulated leases. There are a number of exceptions under the Act;
- Statutory lease extensions
- Existing leases
- Leases granted pursuant to contracts exchanged before 30 June 2022
- Certain financial products such as home finance leases
- Community housing leases
- Business leases defined by the Act as leases of commercial premises
In the case of informal (non-statutory) lease extensions for existing leaseholders the ground rent is restricted to zero. In the case of statutory lease extensions, the landlord is forced to reduce ground rent to a peppercorn for the lease term. Existing leaseholders not extended their leases could consider enquiring about a deed of variation regarding ground rent. Local authorities can impose fines up to £30,000 per lease, ground rent is required and payment not returned.
As of April 2023 the ground rent ban described above also applies to retirement homes. Future measures may include the right for leaseholders to extend leases to 990 years at zero ground rent along with online tools to assist leaseholders in buying freehold rights or extended leases.
- An old method of conveying land.
- A type of estate in land (leasehold).
- Another word for a life interest, where life interest is a type of estate in land granted to someone only until they die.
- Assured shorthold tenancy.
- Built to suit.
- Buy-to-let mortgage.
- Code of practice for letting and managing agents.
- Difference between assured shorthold tenancy and assured tenancy.
- Excluded occupier.
- Green lease.
- Ground rent.
- How to evict a tenant.
- Landlord and Tenant Act.
- Lease Negotiations - Tenants Checklist.
- Leasehold covenants.
- Leasehold enfranchisement.
- Leasing a property - what you need to know.
- Licence for Alterations for Apartment.
- Meanwhile use.
- Peppercorn rent.
- Property guardianship.
- Quantified demand.
- Rent-free period.
- Rent in administration.
- Rent review.
- Restrictive covenant.
- Reverse premium.
- Right to manage.
- Sample retail lease.
- Scott schedule.
- Security of tenure for commercial leases.
- Service charge.
- Shared ownership.
- Short term lets.
- TA6 Property Information Form.
- Types of building.
- Vacant possession.
- What is a mortgage?
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