The rules of the real estate market can get very confusing at times, especially regarding specific paperwork and terminologies. Sometimes, home buyers can mistake one word's meaning for another, leading to wrongful assumptions and costly mistakes. For this reason, it's necessary to know what you're paying for, especially for a long-term commitment like a new home.
Homebuyers tend to misplace their priorities while they're scouting property listings. For example, , it's not just the price and location that a homebuyer needs to gauge; It's also vital to confirm if the property is a leasehold or freehold property. Knowing the intricacies of the latter can help you understand if it's a valuable asset to invest in.
What's the Problem with Leasehold Properties?
Leasehold ownership means the home buyers' hold over the property is only on the structure and not the property's land. This structure is handed over through a lease between the landlord and leaseholder, allowing ownership to the latter for a fixed period. Under historic common law, UK properties are up for lease for 99, 125, 500, or 999 years. Keep in mind that a 999-year lease is essentially a transfer of permanent ownership.
Possessing a leasehold requires a regular payment of ground rent from the leaseholder to the landlord. This lease determines certain enforcement covenants, like obligations for repair and maintenance along with the payment schedule for ground rent.
Lease terms can be much shorter, depending on the terms of the purchase. After the indicated end of the lease period, ownership reverts back to the landlord. This is a standard residential transaction for shared properties, especially on flats around urban dwellings.
While it's possible to own the property indefinitely after securing a 999-year leasehold, it's still possible to lose your home under legal loopholes. This usually occurs for disputes concerning ownership of land against ownership of the building. Unlike leasehold properties, freehold houses offer more versatility for their long-term possession, especially if you're thinking of keeping a long-term asset.
Why Should You Buy a Freehold Property?
It's generally beneficial to purchase a home's freehold when it's available, especially if you're looking for long-term control over the property. This also gives you greater flexibility to its renovation or improvements without following the landlord's restrictions tied to your leasing costs. Additionally, having the home's freehold gives you independence from landlords on any maintenance or service fees your property may be tied to.
When Can You Buy a House's Freehold?
Under the Leasehold Reform Act 1967 Legislation, leaseholders have the right to purchase a property's freehold. However, there are certain eligibility requirements before purchasing a leasehold property's freehold. To buy a property freehold, the property in question, the leaseholder should not be under a commercial lease, and its ownership on the property must be at least 21 years.
Besides the stipulation regarding commercial property, the property itself also needs to fit certain criteria. For one, the property must contain at least two flats if the property is leased to multiple leaseholders. Additionally, the leasehold on the separate flats should be owned by at least two-thirds of its occupants. Finally, the property must not be under a charitable housing trust, cathedral precinct, or National Trust.
Keep in mind that there are different restrictions regarding a property's freehold. This mostly affects residential structures built for shared living spaces, including complexes with communal areas and other facilities. For example, flat owners cannot gain a freehold of a single unit unless all building tenants agree on a fair share of the overall freehold. Additionally, the maintenance and insurance must be paid for by all tenants through a routine collection of contributions.
Once all the aforementioned criteria are met, the leaseholder and landlord can process the valuing of the freehold. This payment is known as a Freehold Enfranchisement.
How Much Will Buying a House's Freehold Cost?
Multiple variables affect a house's freehold cost. It will generally boil down to the property's current value, the cost of annual ground rent, and the remaining years of the lease. Under the 1967 Act mentioned above, the leaseholder and landlord is given protection to receive fair trade. However, there are numerous clauses under the 1967 Act that may prevent a smooth transition of ownership.
Under the 1967 Act, there are two methods of valuing a property with the variables mentioned above. Through Original Valuation, the property's freehold cost will depend on the site's original value and must meet the value limits of residential properties. Additionally, the property needs to qualify for a low-rest test to be eligible for purchase.
The second method is Special Valuation, which applies when the property in question doesn't meet the Original Valuation's prerequisites. Under the Special Valuation Basis, the property's cost depends on its marriage value. For this reason, the cost will be the increase in the market value of the property following a lease extension. This value will be topped up by the cost of the freehold of a property.
Leaseholders and landlords have no choice in the valuation process since the difference in methodology will depend on qualification criteria. While this makes it difficult to project the potential cost of a property's freehold, property owners may look for freehold cost calculators online to compute an estimate of costs.
Keep in mind that the freehold cost isn't the net value of what you'll spend. Like a property's initial market price, purchasing a freehold comes with several fees including legal fees, property valuation fees, and other services to complete the transaction.
When Do You Need a Conveyancer?
The home buying process is too complex for one person to handle. Additionally, it takes plenty of back and forth through different organisations and owners before closing a deal. Part of these transactions is the negotiation for a property freehold or leasehold. This is why many homeowners see it fit to hire a conveyancer to assist them when selling properties.
A conveyancer is a real estate expert who helps home sellers and home buyers with exchange and completion. These two crucial steps in negotiating for terms and confirming paperwork and payment can be challenging without the right precision and care. For this reason, it's necessary to maintain clear communication in the home buying process through these individuals.
With a reliable conveyancer, you'll avoid the potential complications of sending wrong or incomplete documents for purchasing your property's freehold. Like any business partner, they can ensure professionalism in both parties regarding your intent and objective to be a full owner. This is why you should hire conveyancing firms that specialise in these services.
Conclusion
Having full ownership of your property and land is a great way to ensure the stability of your assets in the long term. While it's not a recommended purchase for short-term tenants, buying a freehold will be beneficial once you start thinking about your and your family's future.
Buying a property is usually a person's idea of an asset they wish to pass on to their heirs. This is why the reliability of owning the title of the structure and the land itself is worth the investment. While the steps of the home buying process are generally consistent, different regions and cities will have unique practices and policies. For this reason, it's best to get a professional to help you oversee and process all your preparations and transactions.
If you need help with securing your property's freehold, our conveyancing solicitors in Pembrokeshire can help. Our expert conveyancers at Conveyancing Calculator are ready to give you a professional service at the right price. Contact us to receive effective conveyancing quotations today!
Trackback URL
The Trackback Address for Real Estate 101: Discussing a Freehold Propertys Value is:
