Advantages of leasehold

Press, 14 September 1988, Page 57

Advantages of leasehold

A proportion of leasehold land is available in several of our larger cities, and much of this has been offered for housing development. Many of the lessors (owners) are the Crown, public bodies and religious and eductional institutions which retain ownership of the land to provide themselves with future income stability. Various forms of leases are designed for different purposes, but the type about which questions are asked most frequently is the perpetually renewable lease commonly known as the Glasgow lease. Although this lease is intended to continue in perpetuity, rental reviews take place at defined periods, often every 21 years but following the recent inflationary times these reviews now cover much shorter spans. A lessee, (tenant), acquiring the land for the purpose of establishing a home, builds his house and pays a rent for the use of the land. There are both advantages and disadvantages to those occupying land under leasehold titles. Main advantage to lessees is that there is usually no initial

capital outlay on land purchase. Thus tenants are enabled to use all the money they can spare to pay the cost of building their houses. As a result, the amounts required to be raised on mortagage are reduced by what would otherwise have had to be paid in the purchase of a section. Again, when the ground rental is expressed as a percentage of land value, it may be less than the current rate of interest. Also, rental payments remain constant until the time comes for the next review, which is based on current financial conditions. On the other hand, lessees may be restricted in the use to which land may be put and as to the type and cost of buildings which may be erected, not only by town planning requirements but also by additional conditions which the leasing body or institution may impose. Another disadvantage is that less mortgage finance is usually available on leasehold than on freehold security. Some lending institutions may have limitations placed on them in this respect. A leasehold title is well suited to people on rising incomes which can offset the periodic

rise in rentals. This aspect may not be as advantageous to the elderly on fixed incomes. A house may be sold by the

lessee, subject to the conditions of the lease and approval of the transfer by the leasing body. The purchaser pays for the buildings . and the lessor retains the land. In recent years some lessees have been Riven the oonortunitv of purchasing the land. In view of inflation-fed rises in land values there are now many people regreting that they did not, (or were not financially able to), secure the title to their property in the past. Similarly the big increases in rentals corresponding to the increases in property values have upset many lessees — though in fairness this is simply evidence of market forces in action. It is essential that people considering a leasehold title versus a freehold title review all the pros and cons, and in particular try to envisage the impact any big rise in rental would have on them when received in five (or whenever) years time. Those experiencing sharp rises in rent levels ought to reflect on the perhaps considerable advantage they experienced during the period when their fixed rental operated at a level below true market levels.