The Guardian newspaper is one of a number of publications recently that has shone a light on the increasing use of the leasehold form of ownership for people buying new homes.
There are two main types of ownership in England and Wales. If a person owns the 'freehold' they have an indefinite interest in the property and can sell, mortgage or leave it in their will. Traditionally this is the form of ownership that is used when someone buys a house.
In English law, there are problems with enforcing positive promises, for example to pay for services such as shared lighting, common parts etc. This is why the leasehold form of ownership has been used for developments of flats because there are a lot of shared services in this type of development. A lease is a form of ownership where the interest in the land is limited by time - although if a person holds a lease which is 125 or 999 years long, this has not been seen as a problem in the past.
A trend amongst some developers is first to sell houses on long leases and then sell on the freehold to an investment company once the building at the particular site is complete. Second these leases often have swingeing ground rent clauses contained within them.
Typically, the ground rent on a property with a long lease has always been a nominal sum - may be as little as £5 or £10 per year. But a newer trend is to set the ground rent at around £295 per year. Initially this still looks affordable, however, the danger is in the small print that allows the landlord to double the ground rent every ten years. It is this which gives the freehold much more value and the freeholder can then demand a much higher sum to sell the freehold of the property to the long leaseholder. It is this inability to afford to buy the freehold which has left many people unable to sell their home.
If a person has owned a long lease for two years or more they have a statutory right to buy the freehold - this is known as 'enfranchisement'. The amount that has to be paid by the long leaseholder to the freeholder is calculated according to a formula. But the right to buy the freehold is worth little if the long leaseholder will never be able to afford to pay for the freehold.
It is therefore very important for any person buying a leasehold property to take proper, specialist legal advice from a property lawyer to ensure that they are fully aware of the impact of the terms of the lease on such issues as being able to buy the freehold in the future.
Link to Guardian report: https://www.theguardian.com/money/2016/oct/29/new-builds-house-buyers-leasehold-property-trap
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