If you are negotiating to buy the freehold of your house or block, your landlord may offer you a 999-year lease instead of the freehold. You may think that having a leasehold that lasts almost a millennium is just as good as owning the freehold, or at least a share of the freehold – so you may as well accept the offer. And extending a lease to 999 years is usually cheaper than buying the freehold. On this page, we look at the pros and cons of a 999 year lease vs freehold – and what other alternatives may be available to you.
Unfortunately, a lease is a lease, and a freehold is a freehold. There is no middle ground. If you accept the leasehold option, you will find yourself with less complete control over your property and land.
Got a lease extension or freehold purchase question? We’ve helped around 10,000 people buy their freehold or extend their leases. Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
999 year lease extension or freehold purchase – you can rely on our specialist leasehold team
Extending a lease or buying your freehold (often referred to as collective or freehold enfranchisement) involves a complex area of law. Few solicitors deal with these kind of cases regularly, if at all.
Our extremely specialised 5 strong leasehold team represents clients with lease extension, lease enfranchisement, right to manage and First Tier Property Tribunal applications. We represent leaseholders and freeholders throughout England and Wales. We may well be the largest, most specialist team of its type in the country. And we have helped something like 10,000 people just like you extend their leases or buy their freeholds.
But there is no need to simply take our word for it. Here at Bonallack and Bishop, we are the only solicitors recommended by The HomeOwners Alliance for lease extensions, enfranchisement, right to manage and right of 1st refusal claims. The HoA are the nation’s leading organisation to champion and support the UK’s 17 million homeowners.
And as this page shows, the question of 999 Year Lease vs Freehold is not black-and-white – it depends on your personal circumstances.
Lease vs Freehold – what is the difference?
If you own the freehold of a house or block of flats you own the buildings and the land. This can include the roof, common parts such as stairs, car parks and gardens for example. In the case of a leasehold, you own the house (or flat) but not the land or the building that your flat sits within. These are owned by a freeholder, often referred to as a landlord.
Leases are most commonly originally granted for 99 or 125 years but can be any length. And problems start to mount up when your lease starts getting shorter – and problems massively increase as soon as any lease drops below 80 years.
What are the disadvantages of a lease compared with a freehold?
Disadvantages of owning a leasehold, regardless of the length of the lease include:
· You have no control over the level of service charges to cover maintenance, security, and concierge services in your blog (unless you have joined together with some of your fellow leaseholders to exercise your right to manage).
· Annual ground rent is likely to be payable to the landlord (although ground rent is no longer possible for new leases granted after June 30, 2022)
· Restrictions on your use of the property could apply, for example, you may not be allowed to own pets, make certain alterations sublet your flat – and there are sometimes even restrictions on sharing your flat with another household .
· You may be restricted from setting up a business on the property (this could be a considerable disadvantage in rural areas).
And the fact that your lease is 990 years long makes no difference. It’s still a lease, and you’re stuck with any restrictions in it.
If you want greater autonomy than what is provided with a 999-year lease, you may wish to purchase a share of the freehold.
Enfranchisement – what is a share of the freehold?
With some exceptions, leaseholders have the right to buy the freehold. They can join together to force the freeholder to sell to them, and the grounds for a freeholder to refuse to sell the freehold if the application is made correctly, are extremely limited.
The process of buying the freehold together with some or all of the other leaseholders in this way is called enfranchisement, or lease, collective or freehold enfranchisement.
And enfranchisement means that the participating leaseholders will in future share the freehold together.
Click here to find out about lease enfranchisement – and whether you are entitled to buy your freehold
Buying a share of the freehold means what it says; however, it can be structured in distinct ways:
a) The freehold can be owned jointly by up to four tenants, or
b) A company is the owner of the freehold and each of the tenants holds a share or membership in that company.
But if only some of the leaseholders participate in the freehold purchase project, that doesn’t affect the remaining leaseholders – for example, each and every leaseholder will still have to contribute to the maintenance costs of the building.
Click here to read about house enfranchisement – buying the freehold of your house
What are the advantages of buying a share in the freehold?
A lease is a depreciating asset. So the shorter the lease, the less valuable the property. Eventually every lease runs out.
Most long residential leases (long leasehold refers to any leases granted for 21 years or more – what is generally accepted as owning a lease, compared with a weekly or monthly tenancy) are initially granted for 99 or 125 years.
So at some stage, the leaseholder is going to need to extend their lease. This can be expensive, especially if you have let the lease drop below 80 years in length (where an additional payment is due to the freeholder, referred to as “marriage value”. If you own a share of the freehold you can normally arrange with your fellow leaseholders to all extend your leases to 999 years at no extra cost. However, there is no legal right to do so – that will need the cooperation of each and every person owning a share of the freehold.
Buying a share in the freehold – the downsides?
The biggest disadvantage is the level of responsibility you have. Broadly those buying a share of the freehold will share responsibility for looking after the block. And that includes insurance, maintenance, repairs setting and collecting service charges and ground rent.
If the maintenance is conducted on an “as needed” basis with little planning you can end up with a rollercoaster – high costs one year and little to pay the next. To avoid this scenario, particularly with larger blocks, it can be really useful to form a management committee and have certain administrative roles such as a secretary and treasurer in place.
And remember, if the freehold is technically owned by a limited company, there will be additional responsibilities for all those owning a share of that freehold such as preparing and filing annual company accounts.
Even if you outsource the management of the building to another company, it is still important to have regular meetings to discuss what work needs to be done and how costs should be spread over a certain period.
Another pitfall to avoid relates to future sales of individual flats. You need to set the freehold up in a way that any sale of a flat owned by a participating leaseholder automatically transfers the share of freehold to the new purchaser. Otherwise you end up with a situation where a share of freehold is owned by people who no longer own flats in the block – a highly unsatisfactory position with problems galore..
What is a lease extension?
There are 2 ways to extend your lease.
- the statutory, or formal, route – you have a legal right to force your freeholder to extend your lease by 90 years.
Click here to read more about statutory lease extensions
- the voluntary, or informal, route – you can agree with the freeholder to extend your lease – and there is no limit on the length the extension or the terms involved. If you have jointly purchased the freehold, and it is usual for those who now have a share in the freehold to look to extend their leases – usually 999 years. This does not affect any leaseholder who didn’t participate in the enfranchisement. But they can still extend the lease – either voluntarily with the freeholders or by exercising their legal rights using the statutory route. And of course in either case, the premium they will need to pay for that lease extension will be paid to the new freeholders.
Click here to read more about extending your lease and how our lease extension solicitors can help you
Is the lease extension procedure complex?
Click here to find out more about How To Extend a Lease – the lease extension process
Unhappy with the high level of service charges or poor quality of block maintenance?
If expensive service charges or second-rate maintenance of your building are the main issues, then there are 2 alternatives to lease extension and buying the freehold – exercising your right to manage or applying to the court for the appointment of a new property manager. Our team also specialise in these niche areas of law.
Click here to read more about Right to Manage Company Formation
Click here to find out more about Court-Appointed Property Manager