This September, our CEO Guy Horne is tackling the issue of leasehold properties. Through a series of posts, Guy will assess the misconceptions, opportunities and obstacles that come with leasehold agreements, and why they illicit such strong opinions.
Part two – Opportunities
In the second instalment of this blog series, I want to highlight the opportunities that accompany leasehold agreements.
There is often a presumption that they only benefit the freeholder, which is not the case. The Law Commission correctly identified that changes to the system are required to make the property market a fairer place. Nevertheless, there remains an abundance of benefits to leasehold agreements.
Firstly, they can be bought at a much cheaper price, particularly where the length of the lease is short. This makes them ideal for short-term accommodation. The need for flexibility within the housing market has increased in recent years, and has been cited as a reason for an upsurge in private renting. With leasehold agreements, people are able to keep this flexibility while still owning their own home.
There are occasions where concerns around buying leasehold properties can be eradicated. Buying a 999-year lease with peppercorn rent is a suitable choice for those looking long-term. The peppercorn rent ensures any additional ground rent charges are minimal, while the length of the lease makes the property virtually freehold.
Ongoing opportunities to extend leases are also available. For example, we recently acquired a 3-bedroom flat in North West London with 21 years remaining on the lease. By successfully negotiating an extension with the freeholder to 125 years, we added significant value to the security and price of the property.
Leasehold agreements can work well for overseas investors, who want reassurance that everything is organised in their absence. A professional management company representing the leaseholders can offer this. The freeholder provides a wide range of services and takes on a host of liabilities, including maintenance, health and safety, fire risks, planning permissions and dealing with anti-social behaviour.
A leasehold contract does allow the freeholder to keep retention of ownership, which means they preserve all rights to the land. Once the leasehold expires, the land reverts to being under the control of the freeholder. This can be a very healthy investment when appropriately regulated.