If you plan on buying a property in Gibraltar, you may have come across property descriptions such as leasehold and freehold. You must understand the differences between these statuses and how they affect the property owner. We are here to help you consider both situations, and if you have any questions regarding leasehold and freehold property, please get in touch.
What is a freehold?
With a freehold, the property owner owns the property, and the land the property is built on, outright. The buyer of freehold is responsible for maintaining the land and property, which means these need to be budgeted for. Very few properties in Gibraltar are freehold, particularly residential properties, the vast majority are held on Government leases.
The benefits of buying a freehold include:
· There is no need to worry about the lease ending because you own the property outright
· You don’t need to deal with a freeholder or landlord
· You don’t need to pay landlord charges, service charges or ground rent
What is a leasehold?
With a leasehold, the property owner owns the property for the length of the lease agreement. When the lease concludes, the freeholder regains ownership of the property, unless the lease has been extended.
The vast majority of residential propertyies in Gibraltar are leasehold. This means the leaseholder has sole right to use the property within the building, but they don’t have a stake in the building. Even houses in Gibraltar tend to be leasehold. In these circumstances, the owner owns the house, but not the land the home sits on.
In buying a leasehold property, you take over the lease which was held by the previous owner.
It is helpful to investigate the leasehold, focusing on the following issues:
· How long the lease is set to run
· The cost of service charges and all related costs
· Will there be an impact on your mortgage and property resale value relating to the contract?
The length remaining on the lease can impact on a buyers’ ability to obtain a mortgage. If the lease has less than 70 years to run, it is likely there will be problems for the buyer in arranging a mortgage. This is because lenders are looking for at least twice the number of years on the maximium mortgage length before the lease ends.
This means the bare minimum a lender is looking for on a mortgage is 50 to 55 years. However, to be able to sell the mortgage, the buyer and their lender must feel confident, which means an additional 25 to 30 years is required. When considering these circumstances, it is easy to see why many lenders are uncomfortable in offering a mortgage when the lease has less than 80 years to run, because the buyer may struggle to sell it at the end of the mortgage.
It is possible to extend a lease
Unlike the UK, there is no statutory right to extend your lease in Gibraltar. Hower, in practice (particularly with a lease direct from Government), this is nearly always possible for a fee. If negotiating with Government, the cost of this will be dictated by LPS, but bear in mind if you are extending from a developer, they are at liberty to charge what they wish and you can't extend the term beyon the length of the developer's Head Lease
You can negotiate with the freeholder's requested cost. Taking this action may help you to pay a lower fee to extend the lease, but you will have to hire a solicitor and surveyor, which may lead to an increase in the overall cost.
If you own a leasehold property, you don’t own the land, and this means you aren’t responsible for maintaining the building. You will have to pay a share of the cost of maintaining the structure, and you may have to make payments to a sinking fund. This money is used to cover the cost of unexpected maintenance work.
Some of the services charges you may have to pay when you own a leasehold property include maintenance of any communal garden area, the electricity bills for communal areas and the cost of repair and maintenance work of exterior walls. Therefore, if you plan on buying a leasehold property, you must budget for these costs in addition to monthly mortgage payments.
There are pros and cons to both options, and your personal preference may be a factor which influences the property you wish to buy. Alternatively, the most crucial factor for you to consider may be the type of property itself, which could shape whether you buy a freehold or leasehold property.
Buying Freehold
Typically, when looking for freehold residential properties in Gibraltar, you would expect to be searching at the very top of the price bracket - ordinarily several million pounds. There are however the odd freehold gem that you may be a ble to get a great deal on.
One example would be this 18th century home on Cumberland Steps. The only residential freehold curently on the market for under £1m:
Cumberland Steps, South District
Offered to the market with Richardsons Estate Agents, the property spans 235sqm over three floors and is a relatively affordable way to avoid lease negotiations and service charges. Contact Richardsons directly on 00350 200 79210 or info@richardsons.gi for further information.
Ultimately
You more than likely will end up buying leasehold in Gibraltar and there are campaigns afoot to bring in more regulation in the leasehold residential sector to be more inline with the UK - where several leasehold rreforms have been brought in over recent years. Ensure you do your due diligence on the terms of the lease and take advice from your mortgage provider and solicitor.