Often clients ask me “should I purchase a commercial freehold property or a leasehold property?” Well there are a lot of different variables to consider. Some investors attitudes are “If I buy a leasehold commercial property and it makes me money then I do not care about the diminishing value of the asset’ OR ‘An 80 year lease will outlive me and you so what is the point in purchasing a freehold property?”.
For the record, I do not disagree with either of those statements, what I would consider is this:
Yes you can still make money from buying a long leasehold property however you are compromising on your rights. Depending on how the lease between you and the freeholder is written, you will pretty much always have to ask the freeholder for permission before you do anything to the property. By doing something I mean extend your property, refurbish and/ or make alterations to your property, change signage and build over the carpark.
As you can see, the main concern with leasehold is control and if any of the above are not included within the leasehold, the freeholder will almost certainly ask you for a cash premium and to cover their legal costs to create a deed of variation.
You also need to consider how contactable the freeholder is. For example the freeholder may live abroad where the property has been bought solely for investment purposes or is too busy to talk to you about your plans immediately which in turn could delay your plans significantly. Before purchasing a long leasehold property, I would place serious consideration on whom/where the freeholder is before you make a purchase as ultimately they will be your landlord who is actively involved in any decision.
A long leasehold can be considered as a diminishing asset. When a long leasehold has less than 80 years unexpired this will have a detrimental effect on the property valuation. Banks tend to be more cautious about lending money to anyone acquiring a property with a leasehold of 80 years or less.
Finally the term ‘Freehold’ means absolute title and therefore there is no landlord to consider. All of the usual limitations and restrictions such as Planning and Building Control will still apply to a freehold title.
I hope you found this short blog useful on freehold vs long leasehold. Pioneer Property Consultants can help acquire a freehold or a leasehold property for you. Please get in touch via our contact page.
