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Why do you need to understand leasehold?

Friday 02 June 2017

With four out of 10 new properties in England and Wales now being sold as leasehold, it is more important than ever that you understand the ins and outs of leasehold properties.

For many estate agents, there has been little differentiation between leasehold and freehold properties for a long time - a home has always been a home. But understanding leasehold can make a big difference to your customers, your purchasers and you.

There are a number of factors that can have an effect on the appeal or viability of a leasehold property. These include the length of the lease, ground rent charges, the total balance of the sinking fund and the quality of management of the common parts, to name a few.

Each of these areas are important to understand and can make a difference to the value of the property, which can ultimately impact on your fees.

For example, if you have a freehold property that is in poor condition, you would not price it as high as a property that is pristine, as it will not require the same amount of money spending on it. It is the same with leaseholds; if there is a healthy balance in the sinking fund, this is effectively an asset that can be sold on. Even if the common parts are not in the best condition, a strong sinking fund could mean that the purchaser can see the property put in good order without having a cost.

The Leasehold Advisory Service has been advising on residential leasehold properties since 1994, educating and advising homeowners to ensure they know their commitments and responsibilities when it comes to owning a leasehold property.

As the result of the Competition and Markets Authority investigation into leasehold, the Leasehold Advisory Service has put together material designed to give all potential buyers salient information on leasehold, and what it means to the buyer.

Knowledge is power, so as an agent, ensure your property particulars contain relevant, detailed leasehold information. This will not only benefit the purchasers, but will also give you a competitive advantage.

Consider drawing up a standard particulars template for the sale of leasehold properties that will allow a purchaser to compare the terms of the lease and become better informed. Knowing the costs and their obligations upfront will benefit the market in the long term, and this should also reduce futile transactions where purchasers find out about charges late in the day.

Raising awareness among new purchasers is vital, and The Leasehold Advisory Service, along with Propertymark, are constantly looking at ways to communicate information that will better inform and help homeowners understand leaseholds.

For more information on what consumers should be looking out for, take a look at our leasehold guide.