G OING back to basics, as a buyer you will know that there are two main ways of holding property, freehold or leasehold.
The first is when you outright own the land and the building forever.
The latter means that although you own part of the building, you lease that ownership from the property's freeholder (sometimes called a landlord) for a set period of time.
Leasehold properties are usually flats in purpose-built blocks or converted buildings where there are shared areas such as corridors and entrances that will be maintained by the freeholder in exchange for a service charge to the tenants.
If you do decide to buy a leasehold property, it is important to check the lease that you enter into with the freeholder so you can ascertain who takes responsibility for what, what your rights are and whether there are any restrictions you must abide by.
One of the most important things is to know the length of your lease.
If it is short, i.e. less than 80 years, it can greatly affect the value of the property and cause complications when taking out a mortgage or reselling the home when the time comes.
Each property is different in terms of the length of lease but buyers of new properties will usually be granted either 99 years or 125 years on the leases.
As the term of your lease becomes shorter, the value of your property in effect decreases, although this is normally masked to a certain extent by the inflation of house prices.
However, the lease can be made longer again and the value of the property increased.
Leaseholders are legally entitled to a lease extension after they have owned the property for two years.
However, some landlords may agree informally to extend the lease within the initial two-year period.
Leaseholders can either follow the statutory route or may informally agree a cost of extending the lease with the freeholder.
If you purchase a property with a share of the freehold then the co-freeholders can extend their leases to 999 years for no premium as long as they are all in agreement.
Usually the only costs are legal fees for carrying out the extension.
At the point where the lease length drops below 80 years or less, it becomes increasingly important to extend the length sooner rather than later as a "marriage value" is put into effect.
The marriage value is the way in which the amount of financial compensation the freeholder will get is calculated.
The marriage value is calculated by a surveyor based on the length of term remaining, the value of the property and the ground rent.
It is important to be vigilant of the term left on your lease to avoid a large premium being payable to the freeholder.
On top of the premium for the lease you will also be expected to pay the landlord's legal and surveyor's costs. Lease extensions can amount to thousands of pounds.
Another disadvantage of short leases is that lenders will not lend on leases less than 55 years and some will not grant on a lease of less than 70 years. It may sound complicated but you normally only have to worry about the length of a lease when it is less than 80 years or approaching that point.
As long as the term of years is long you can borrow, buy and own without worrying about the devaluing of your property.
