London's ever increasing population and finite supply of development land has meant that the city is one of the most densely populated cities in the developed world. As such property has always had to adapt, as in any highly populated urban area.
The sight of apartment developments are often a sign you are entering the bustling city. The creation of apartment buildings has allowed multiple residences to occupy the same plot for decades, thus going some way to solving housing issues that affect major cities.
However many are not aware of the differences in buying an apartment versus purchasing a house. Many see the apartment marketed as leasehold, but this doesn't often sound the alarm bells that it should.
Ultimately in the UK, the Crown (The Queen) owns all the land. Therefore the closest thing to real ownership for us mere mortals is a freehold, which is the ownership of 'real property'. Freehold is the common title for property ownership in the UK. Essentially the estate must be immobile and ownership must be for an 'indeterminate duration' i.e. no fixed end date. For those purchasing land or a house on the plot of land it is more than likely you will purchasing freehold.
What about if you're buying an apartment on the 5th floor of a new development, or a flat within a converted period mansion building? Well it's likely you will be purchasing a leasehold title. But what does this mean? It means that your ownership has a fixed end date, at which point your possession will revert to the freeholder, and also you will be bound by the terms of the lease agreement.
So why should you be aware? Leaseholds are essentially diminishing assets, so as time goes on and the lease term gets shorter, it is worth less. You might own an apartment in a block of identical units. The apartment next to you has a lease term of 125 years and just sold for £500k. Your apartment though, has a lease term of 50 years, is it worth £500k too? Unlikely.
What about the lease terms? As with any legal document, reading and understanding the terms is imperative. Key things to look for are ground rent, service charge processes, restrictive terms with regard to refurbishments, restrictive use terms and hidden costs amongst others.
A recent example we have seen is a ground floor apartment in a converted period house purchased on a leasehold title, whereby the purchasers wanted to extend the property to add value. Once they had purchased the property, they found that a restrictive clause in their lease did not allow them to do this and as such they have not been able to execute their plan. If they had read and understood the lease agreement, it may have been that they would have altered their pricing or chosen another property altogether.
In London it is near enough impossible to avoid purchasing leasehold unless you have several million pounds at your disposal, so the key is to get as much information as possible and make it relevant to you. Those buying in new developments will often be purchasing a 125 year lease or in some cases a 999 year lease, so you won't be worrying about a renewal for a while.
Other forms of title include share of freehold and commonhold, but as with anything the devil is in the detail, so have an expert on your side when assessing the documents. Make sure you are comfortable with the ground rent costs and service charge fees, and beware these are can be lumpy.
On an unrelated note, London has been a wonderful place to be in the last few weeks as we've been graced with intermittent days of glorious sunshine. You can tell it everybody is worried it won't last as every outdoor dining table, park bench or patch of sun drenched grass is filled by about midday, even on a Monday.