How can you sell a residental leasehold property?
A leasehold property comes with more complex set of rules, which one has to consider fully before making the decision to sell or buy.
When one is informed, one can go ahead with confidence and sell a leasehold house however, going ahead without knowing all the facts can result in a nightmare later on.
1. What is a leaseholder?
A leaseholder is the person who owns the property on lease for a stipulated period of time, which can be 99 years or 125 years. The leaseholder is also called a tenant, albeit a different tenant from a tenant in a short-term lease. The leaseholder agreement will set out the terms of the contract and one must familiarise him or her with them before signing.
2. Implications of buying a leasehold house:
The lease contract between the leaseholder and the landlord offers conditional ownership of the house for a fixed period of time. The leaseholder will not be allowed to have free reign over the house and may still have to obtain consent from the landlord to carry out any improvements or alterations to the house.
The key issue is the length of the lease. Mortgage lenders will not look at a property with a short lease favourably . Bear that in mind if you are thinking of selling. Check the length of your lease as you may require a lease extension.
3. The free holder remains the landlord:
Where one sells a leasehold property to a willing buyer, and the willing buyer complies with paying off the property and has all the receipts to show for it, the fact is that the free holder remains the landlord. The seller or the free holder continues to own the land upon which the property is built and the leaseholder continues to pay ground rent.
4. Ownership of property is limited to the period of lease:
When a leasehold property is sold, the ownership of the property by the new owner is only limited to the duration of the lease. Once the lease expires, the property will revert back to the freeholder. An example would be where you buy a leasehold residential property that still has 50 years on it. If you take a mortgage bond and finish paying it off in 20 years, after the 20 years, you will enjoy the ownership of the property, for the next 30 years. After 50 years, the property and the land will revert back to the freeholder, leaving you with no rights over it.
5. Calculation of the rent or lease fee:
The leasehold or the lease fee is calculated at a percentage of the total freehold value. However the leaseholder will still be liable to pay other expenses like property insurance, council rates and maintenance of the property, amongst other things.
6. The fee is fixed over the duration of the lease:
This is a benefit of a leasehold property. Whatever the amount is at the beginning of the lease, it will remain fixed, irrespective of annual rental increases of the increasing value of the property. However, at the end of the lease, the rental would be brought up to the value of the property and can increase exorbitantly.