UuVareations

What it is: Now that there are many more flats and apartments being built than houses, leaseholds, once rare, are becoming ever more common. All apartments in blocks are sold leasehold as to have a freehold property means that you own the land on which the property is built; clearly this cannot happen with a third-floor apartment, for instance.

All leasehold properties are owned by a freeholder; that is, somebody who owns the whole building, and who leases out the separate apartments to the leaseholders. But freeholds frequently change hands, for a variety of reasons. The initial freeholder or developer may have gone bust, they may have died, or they may have tired of the business of collecting ground rents, service charges and so on, or it may have been repossessed via a tax lien. It is possible to buy the ground rents off the freeholder and so own the building. This business is only going to grow as ever more apartment blocks are created.

Pros: Ground rents and freeholds are often sold extremely cheaply and some are sold through tax liens. You see ground rent investments being advertised for as little as ?4,500. But the collectable ground rents may only come to ?300 a year. People who buy ground rents and freeholds usually view them as a very long-term investment, and as their business. It’s no use just buying one; you have to own a lot to make it work.

The main reason why people buy ground rents is that when all the leasehold interests of a property run down, the buyer of these ground rents now owns the freehold. In practice these days, lease-holders are likely to get together to collectively enfranchise - buy the freehold between them - and in order to do this, they have to negotiate with the person who owns the ground rent interest.

The shorter the leases, the more the ground rent owner stands to gain from selling the freehold. The whole business is subject to extremely complex calculations and legal processes and either way, whoever owns the ground rents stands to gain - eventually.