Information about leasehold homes
What is Leasehold?
To put it simply, leasehold ownership is like a long tenancy. Your lease will give you the right to occupy and use the home for a longer period – or the ‘term’ of the lease – which will usually be for 99 or 125 years. The home can be bought or sold during that time.
The term of the lease will be fixed at the very beginning, therefore decreasing in length each year. Therefore, if it were not for inflation, the value of the flat would diminish over time until the eventual expiry of the lease, when the flat returns to the landlord, although this is subject to some rights to remain as a tenant in certain circumstances. The landlord can be a person or company, including a housing association or local authority.
The leasehold ownership of a flat usually relates to everything within the four walls of the property, including floorboards and plaster to walls and ceilings, but does not usually include the external or structural walls. The structure and common parts of a building, as well as the land it stands on, are usually owned by the freeholder, who is also the landlord. The freeholder is responsible for the maintenance and repair of the building, with costs for doing so being recoverable through the service charges which are billed to the leaseholders.
When referring to the leasehold ownership of a house, this usually relates to the whole building – both internal and external – and can possibly include a garden and/or driveway. Typically, the leaseholder of a house would be responsible for the repair and maintenance of the whole building.
What is a Shared Ownership lease?
For those who are unable to buy a home on the open market, Shared Ownership enables buyers to purchase a percentage of a property while paying rent on the remaining share to a landlord.
Those who buy a home through the Shared Ownership scheme will have a right to purchase additional shares in their property through a process known as staircasing and, in most cases, can go on to buy 100% of the property. At this point, the buyer will become the outright owner.
Most Shared Ownership leasehold properties are granted by housing associations as part of their home ownership programme. Such leases are almost always in a format approved by the Homes and Communities Agency (HCA, formerly the Housing Corporation).
For information about the differences between a Shared Ownership lease and an ordinary long residential release, we would recommend visiting the official LEASE website.
Shared Ownership leases: FAQs
I have a Shared Ownership lease – how is the rent of the owned share calculated by the landlord?
When the lease on a Shared Ownership home is first granted, the rent is usually calculated at 3% of the equity owned by the landlord/freeholder. For example, if the property is worth £100,000 and the share owned by the leaseholder is 50%, the rent will be 3% of the remaining share that’s held by the landlord. 3% of £50,000 would therefore equate to £125 per month.
The lease will also provide that the rent will increase every year typically by a specified percentage above the upward movement of the Retail Price Index (RPI).
Can I increase my share of the equity in the property leased to me?
The overwhelming majority of Shared Ownership leases provide that the leaseholder can purchase additional shares in a maximum of three stages – with most able to buy up to 100% of the property. The term used to describe the leaseholder’s right to purchase additional shares is called staircasing.
Do I have the right to extend the lease on my Shared Ownership home?
A Shared Ownership lease is specifically excluded from this right under the terms of the Leasehold Reform Housing and Urban Development Act 1993, unless the leaseholder owns 100% of the lease.
Can I sublet my home?
While you should always refer to your lease for exact terms and conditions, the vast majority of Shared Ownership leases do prevent subletting.
However, if your circumstances change (for example, if you are required to temporarily move abroad for work) then you can of course contact your landlord to discuss your options. Please be aware that the landlord has a final say on allowing or refusing subletting.
Do I have any obligations to the landlord if I wish to sell my share of the home?
Many versions of Shared Ownership leases provide that the leaseholder has to give a right of first refusal – or a ‘nomination period’ – to the landlord if they wish to sell their home. Under a Shared Ownership lease, the landlord usually nominates a purchaser and the purchase price is determined by an independent surveyor appointed by the landlord.
This nomination period is usually around eight weeks, although this can vary depending on the provider. If the landlord is unable to sell the home during this time, the leaseholder is often allowed to then sell the home privately or through an estate agent of their choice.
Does leasehold apply to private sale flats or just those sold through Shared Ownership?
Most flats, regardless of tenure, are sold as leasehold properties with the freehold held by the landlord – this will often be a local authority or housing association.
If I have a Shared Ownership lease, do I have the right to participate in a collective purchase of the freehold in my building?
A Shared Ownership lease is specifically excluded from this right under the terms of the Leasehold Reform Housing and Urban Development Act 1993 – unless the leaseholder owns 100% of the lease. Once you have acquired 100% ownership in the property, this restriction no longer applies.
For more information about Shared Ownership leaseholds, please visit the official LEASE website. LEASE are an independent body who provide free advice on residential leasehold (that is, a flat or house with a lease longer than 21 years) and park homes law. All of their advisors are legally qualified.