Post: #1

Leasehold and freehold are property ownership terms in the UK.

Freehold: outright ownership of the land, land reverts to whomever is specified in the will upon death or when it is sold.

Leasehold: you pay 200k+£ on a property for a set length (99 years normally). You can get a mortgage on these properties but as the years progress the money you put into the leasehold decreases to 0 as the lease length reaches zero. You may have to move out once the 99 years are up.

To the question: why would anyone willingly sign up for such a stupid arrangement? I've heard people say, "Well you could live in a high rise but you don't own the actual land" to whigh I say, "Let me show you how condos in the states work." In both examples you still have to pay a condo association fee. The leasehold normally has a different name for it.

This seems like an absolutely terrible situation. Why would someone enter such an arrangement? Paying so much money and then having it evaporate? At least with a freehold you can let your property get passed down to your children. Nothing of the sort occurs with a leasehold!

Can a life long Brit explain why someone would do this? It seems like the ultimate generational scam.

Post: #2

Not sure if this is applicable in the UK.

If you purchase a condo, your monthly fee will include the mortgage payment plus the condo fees plus property taxes. When you rent, you only pay for the rental and the property owner takes care of taxes and condo fees. In most cases (not all), it will be cheaper to lease than to buy. Owning property is not a bad thing if you can afford it. But it's also rare nowadays to stay in one place long enough to pay off the mortgage. Much easier to be location independent when your just leasing.

Owning property is not necessarily risk free. The value of the property could go down (e.g. becomes a depressed neighborhood)where you have to take significant loss. The value could also skyrocket (e.g. SF) where you can no longer afford to pay property taxes. In both cases, you just move somewhere else if you were leasing the property. You can not do that if you own it.

If its an investment property, then you will need to also consider the out of pocket cash requirement, cash flow and ROI. In addition to the math, businesses will only purchase property if it provides some strategic advantage.

Post: #3

This happens in U.S. commercial real estate also. Entire buildings are leased for 99 years and the 99 year "ownership" operates as, well, an owner. Another example is land is leased for 25+ years, the lessee builds a building and uses the property until the lease is up. In the mid 2000's, I know examples of banks leasing desirable commercial suburban corners to build a bank branch. For a couple of acres, the banks were paying close to $200,000 per year for the land! Soon after, and mostly for other reasons, these big bank stocks lost 90% of their value.
I think these deals are only done when the seller/lessor has a very strong negotiating position. If the lease is long enough, the buyer's analysis of the deal is similar to actual ownership.
In commercial, tax advantages also exist so the the owner gets to depreciate the value of the property over 37 years (I recall).

Post: #4

It is not as good as getting a freehold but leaseholds are normal for appartement blocks as it allows the freeholder to exercise control over communal areas within the building and in the surrounding grounds.

Leases can normally be renewed.

Post: #5

Short answer- people are stupid and uninformed, inexperienced with finance/real estate, get "sold" by crafty maneuvers, and often do what's better or cheaper in the short term.

Post: #6

Maybe it makes sense for someone not planning on having any children?

I.e. they get a cheaper house to live in for their lives, but don't get to pass it on.

I suppose you could see it as a very long-term rental agreement with a discount.

But yeah in terms of investing in assets to grow wealth, it sounds bad.

Post: #7

(07-24-2016 04:23 AM)The Beast1 Wrote:  Leasehold and freehold are property ownership terms in the UK.

Freehold: outright ownership of the land, land reverts to whomever is specified in the will upon death or when it is sold.

Leasehold: you pay 200k+£ on a property for a set length (99 years normally). You can get a mortgage on these properties but as the years progress the money you put into the leasehold decreases to 0 as the lease length reaches zero. You may have to move out once the 99 years are up.

To the question: why would anyone willingly sign up for such a stupid arrangement? I've heard people say, "Well you could live in a high rise but you don't own the actual land" to whigh I say, "Let me show you how condos in the states work." In both examples you still have to pay a condo association fee. The leasehold normally has a different name for it.

This seems like an absolutely terrible situation. Why would someone enter such an arrangement? Paying so much money and then having it evaporate? At least with a freehold you can let your property get passed down to your children. Nothing of the sort occurs with a leasehold!

Can a life long Brit explain why someone would do this? It seems like the ultimate generational scam.

The house will be cheaper upfront than with freeholding. The general rule is that once there are 80 years or less on the lease, the value of the property plummets. Therefore the people who leasehold are those who know that they are not going to spend longer than 15 or so years in that house, as it is cheaper than freeholding for the same period of time.

It is generally younger people who lease because they are more mobile- almost every professional adult will move houses at least once in their adult life. The chance of them dying is very low, so that's not really an issue.

Post: #8

In England there is a law in place that means you have the legal right to extend your lease but it can/will cost a lot. Depending on how many years are left you’d be looking at £5k minimum up to 10's of thousands on very short leases.

Generally, whatever it costs to extend the lease is going to be added to the properties value so it really cancels it out (it may even increase the value beyond the lease extension costs). It’s not like the building owner can refuse to extend the lease, let it run to 0 and kick you out the flat with nothing.

Literally all flats are sold in this way in the UK so we have no option but to buy with a lease. As long as the lease is around 90-99 years it's fine and completely normal, if it is lower it will be reflected in a lower asking price anyway.

Post: #9

Geeze there's no condo like option where the value you put in doesn't decrease over time? At least in America when you buy a condo you at least own it indefinitely minus the condo fees.

I love this little country but there's no way on god's green earth i'd sign up for such an arrangement.

Post: #10

I think you're over-reacting mate. There isn't really any major problem here.

Post: #11

It just seems like such an odd system where a great source of generational wealth is sucked away ensuring that your children won't have a large asset they can either split amongst themselves or use for their own families.

The irony of the situation is, it has always been done this way and most folks are content not questioning the status quo.

I'm not too well versed on uk tax law, but couldn't I put my leasehold under a "business" and use the depreciation as a means of offsetting the tax on the business? Might be a clever trick to help your business grow.

Post: #12

Many, many lease holdings will have a peppercorn renewal of £1 for instance.

Many will be very low amounts of a few £1000.

I would suspect that the number of residential buildings on leas holdings, away from city centre apartments, is very small. So focus on those if you are looking to become a property baron.


As for the tax question, god knows...as you've probably figured out by now, the UK actively makes making money very difficult and tax breaks and shelter schemes are frowned upon by HMRC. Often it is more expensive to hold things in companies than personally.

Post: #13

(07-24-2016 01:09 PM)GoodTimer Wrote:  This happens in U.S. commercial real estate also. Entire buildings are leased for 99 years and the 99 year "ownership" operates as, well, an owner. Another example is land is leased for 25+ years, the lessee builds a building and uses the property until the lease is up. In the mid 2000's, I know examples of banks leasing desirable commercial suburban corners to build a bank branch. For a couple of acres, the banks were paying close to $200,000 per year for the land! Soon after, and mostly for other reasons, these big bank stocks lost 90% of their value.
I think these deals are only done when the seller/lessor has a very strong negotiating position. If the lease is long enough, the buyer's analysis of the deal is similar to actual ownership.
In commercial, tax advantages also exist so the the owner gets to depreciate the value of the property over 37 years (I recall).

It's amazing how many big buildings are on leased land. These companies lease the land for decades (often with high lease payments) and then spend millions on the building. Breach the lease agreement or fail to make the payments and they lose that beautiful building and all the money they put into it.

The worse case I've ever seen was the Horizon Hotel and Casino in Lake Tahoe. Tropicana bought the building without the land in 1990 for $19 million. They paid a big fat land rent payment each year and the landlord in 2008 was able to squeeze another $165 million from Tropicana which allowed Tropicana to continue to lease the land for another 3 years. After a few more years the lease agreement expired or was terminated and the landlord kicked them out and kept the building. Source

Post: #14

^^ Wow

Anyone have any idea on where to start if you want to buy buildings that companies can rent out monthly???

If I can get my hands on a shopping plaza with 8-9 businesses and rent them out to a couple companies (stores) then I can make a killing.

Anyone tried this?

Post: #15

(07-29-2016 02:24 PM)NewDayNewFace Wrote:  ^^ Wow

Anyone have any idea on where to start if you want to buy buildings that companies can rent out monthly???

If I can get my hands on a shopping plaza with 8-9 businesses and rent them out to a couple companies (stores) then I can make a killing.

Anyone tried this?

Going by your recent post history and threads....it looks like you're in a desperate hurry for a "get rich quick scheme". While this is good, don't spread out too thin to the point that you cannot do things right.

Post: #16

I wouldn't say I'm trying to get .rich quick. Just looking for my next venture. I've made decent money for years and I'm still in my 20's. I'm trying to look into other things to get to that next level. Many things interest me as well.

Post: #17

(07-29-2016 02:24 PM)NewDayNewFace Wrote:  Anyone have any idea on where to start if you want to buy buildings that companies can rent out monthly???

There are many books and web sites about it. If you just want to see listings for sale check out Loopnet.com.

Post: #18

Not all leaseholds are of the <125 years range. I've seen some at 999 years. If you can buy such properties with your own money and rent them out, that's still a very solid investment. I have relatives who are very into properties and while freehold is the clear preference, so long as the lease isn't poor, they're still game.

Post: #19

I used to manage leasehold. Shit job. My manager owned a freehold property for himself and his family and his mantra was "don't buy leasehold" and managing 6000 of the fuckers was his role.
There's leasehold and then there's leasehold: there are some amazing properties in london for the super rich with switched on efficient management.
Most if not all of what I managed was utter shit often retailing at up to £500k . There are so many cons and hidden fines involved in the leases themselves .. But so many people do not have the money to REALLY afford to live in london hence they go in for shared ownership leasehold deals in order to get on the property ladder and they don't get good advice before they do. Then they are often truly fucked. Then they ring people in the job I had and complain. Shit Job as I said.
In terms of landownership I know of buildings situated on land owned by four different companies in a Russian doll type way with massive legal headaches. I didn't manage the building so I didn't care or even try to comprehend it.
You are definitely better off buying freehold. But to be honest that's as obvious as saying you're better off buying a house instead of a flat. Easy to say, hard to do...