What Landlords Need to Know about Leasehold Properties

One area of real estate law that could be better understood by many buy-to-let landlords is the surprisingly common type of arrangement known as a leasehold agreement.

What is a leasehold agreement?

A leasehold is a property agreement that allows an individual or company to "own" a property for a fixed period of time, after which the rights of ownership are returned to the landlord, who is known as the "freeholder". This is a particularly common option for flats, but can apply to houses as well.

Rights and responsibilities associated with lease holding

As with a typical rental agreement, a leasehold agreement will outline the rights and responsibilities of the leaseholder, including whether they are required to ask permission to make alterations on the property, and who is responsible for upkeep and repairs.

The lease should also outline the charges for which the leaseholder is responsible, including, potentially, the service charges and fees for unexpected maintenance. The freeholder/landlord, however, is generally responsible for buildings insurance unless otherwise stipulated in the agreement.

The leaseholder may also be asked to pay something called "ground rent". This is typically £100 or £200 a year and needs to be requested by a formal demand from the landlord.

The leaseholder has the right to be consulted for charges related to building maintenance if they are more than £250 for planned work, or more than £100 per year for charges related to work and services that will last more than 12 months.

You also have the right to dispute charges as a leaseholder, if you think that they are unreasonable, that the work standard is subpar, or that you shouldn’t be paying this particular charge at all.

Limitations related to owning a leasehold property as a buy-to-let landlord

There are a number of drawbacks to making a leasehold property a staple of your buy-to-let business. Not least of these is the fact that the freeholder still retains a certain degree of ownership with regard to the property.

Depending on the lease agreement, they can, for example, refuse you the right to sub-let the property or impose limits on the length of rental agreements. They also occasionally reserve the right to meet and interview any and all prospective tenants. This can be a big burden on your business.

There are also all kinds of other restrictions that the freeholder has a right to include in the lease, including whether pets are allowed in the apartment.

But far and away the most problematic area for many leaseholders are the fees (discussed above). Many buy-to-let landlords go into a leasehold agreement without fully understanding all the charges they may be responsible for. As this can significantly affect the profit margins of your business, it is a good idea to get all your ducks in a row before signing any lease.

All that said, each one of these "drawbacks" needs to be outlined in the lease, and so they can all be avoided through careful reading and negotiation prior to signing.