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Leasehold scandal... Leasehold V Freehold

View profile for Lisa Cox
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The “leasehold scandal” continues, as the BBC reported recently that, according to a new survey, almost half the people who bought a leasehold house in the past decade did not know what they were signing up to, and 62% of respondents feel they have been misled into the purchase by their solicitor. 
 
When most people think of moving home they consider their options to be either “buying a house” or “renting a flat”. Whilst this used to be the norm, there was a booming trend of developers selling leasehold titles to new-build homes and selling the freehold on to third party investors. 
 

So what is the difference between leasehold and freehold? 

 
A person who owns a property and the land it is built on outright is referred to as the freeholder. If you own the freehold title, then you own the property and land until you sell it and are responsible for maintenance of the property. 
 
A leaseholder has the right to use the property through buying a lease from the freeholder. Once the lease runs out, the property will revert back to the freeholder. The lease will set out the rights and responsibilities of both parties, with the freeholder typically being responsible for maintenance works. The leaseholder pays annual service charges and ground rent to the freeholder, along with any fees for repairs. 
 
Traditionally, freeholders charged “peppercorn” ground rent and would often not collect it. However, this changed when developers began to include clauses setting ground rent levels between £200 and £400 that would double every ten years. Many first-time buyers entered into long leases which they believed were virtually freehold when, in reality, the terms of the lease meant this ground rent could one day amount to thousands of pounds per year. 
 
Whilst the government has announced plans to ban the selling of leasehold titles to new-build properties and to cap ground rent, there is no legislation currently in place, which is why it is crucial that you receive expert legal advice when you buy a new property. I am based at our Colchester office and can be reached on 01206 217307 or lisa.cox@birkettlong.co.uk.

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