With the general climate turning against leaseholds on properties and a proposal to ban them on all new hold buildings in the offing, it may be prudent to examine alternatives that already exist.
There are approximately 4 million properties in the UK that are classified as leasehold according to the Law Commission. The arrangement involves the payment of a "ground rent" to the freeholder, with the leaseholder "owning" the property for a set period of time.
Common issues that arise from this arrangement are disagreements regarding:
- the amount of the ground rent
- the length of the lease
- the cost of repairs and maintenance
The value of the property can also be affected by the length of the lease, causing further issues.
Another issue that can arise is that the freehold can change hands, significantly altering the terms for the leaseholder.
The government has moved to ban the practice due to some of the concerns listed above.
Commonhold is one alternative that exists, which means that buyers would also hold a stake in the management of the building as part of the purchase price. However, fewer than 20 of these developments have been built in the UK since the initiative was introduced. It also has the advantage of not operating on a system based on leases, meaning they can't expire, removing the time factor.
This type of arrangement is less popular with both developers and banks, however, with only 30% of mortgage lenders willing to lend to commonhold property owners and developers preferring leasehold as it's more attractive to owners.
So it seems that freehold properties and leasehold properties that fall under the new rules will remain the most common arrangements for the foreseeable future.
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If leaseholds are toxic, could this little-known alternative be the answer?