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What is the difference between a Leasehold V Freehold?



PARVEEN KAUR SIDHU
PARVEEN KAUR SIDHU >

Solicitor

Fri 18 March 2022 What is the difference between a Leasehold V Freehold?

Buying a leasehold or freehold property can raise many questions. From knowing who is responsible for arranging and providing services, to who pays.

Leasehold ownership of a flat or a house, gives the owner the right to own the property for a set length of time, this is referred to as the term of the lease. Typically, leases are granted for a fixed period of 99,125 or 999 years.

Freehold ownership is where a person or organisation has outright ownership, forever, of a property and the land on which it is built.

Leasehold Ownership

If you own a leasehold property, you will be grated a fixed period lease (originally granted for a period of more than 21 years). The leasehold flat/house itself will be demised to you, the leasehold owner and you will have certain rights and obligations.    

A leaseholder will generally not own the land that the property is situated on or the structure of the building. You will not own the communal areas, such as the stairwells and hallways.

Although as a leaseholder you will usually pay the ground rent, a proportion of the service charges and insurance of the building. The costs of the services are shared amongst the leaseholders.

Buying a Freehold title means that you will own the land upon which the property is located on. All rights granted under the title are passed to you as well as all covenants and obligations.

 You will be responsible for insuring the Property and maintaining the Property at your own expense. Such costs could go into thousands if dealing with structural repairs or works. You will have the sole responsibility and discretion for these works.

There are some Freehold Properties in the UK that are subject to very long leases. In these circumstances you will often be the leaseholder of that lease as well as the Freeholder, i.e. Landlord.

You as an owner of a Freehold Title will not be required to seek consent from a Landlord, for alterations or permission to assign the Property. Often for leaseholders, a cost is incurred, and this is not applicable for Freeholders.

Freeholds may have to contribute towards the costs of any private roads or grounds maintained by a management company. Such costs are shared amongst property owners who benefit from these and the requirements for repair works are not very often and the management company do not have high fees.

The Contract

The lease, which is a contract between the landlord (usually the freeholder of the land) and the leaseholder (owner of the property) will set out the rights and obligations of the parties.

The lease will set out covenants that the parties will agree to adhere to for example, the landlord (freeholder) will usually be responsible for arranging the building insurance to cover the structure of the building (not the contents inside any individual properties).    

They will also be responsible for services to the building, the repairs and maintenance of the structure of the building, including the roof/ gutters and communal areas such as stairway, gates, maintenance of communal gardens etc.

In return for the services, leaseholders will generally be responsible for paying a proportion of the total costs incurred or to be incurred by the landlord, these are referred to as ‘service charges’. Service charges are usually sent to the leaseholder by the way of a demand for payment, in advance or in arrears.

Prior to purchasing the property, it is worth checking how much ground rent, services chargers are payable to get an idea of the financial commitment that will be involved. It is also worth finding out whether you have access to any communal spaces or facilities on the land.

The lease will usually include restrictions, some examples of these restrictions could be:

If any terms of the lease are breached, then the freeholder could take the legal action against the leaseholder and or forfeit the property.

The Title Register and Title Plan will describe the property being purchased. It may refer to other documentation known as Transfers or Conveyances that were created and entered into several decades prior during development of the land to provide housing.      

All rights granted and rights reserved are attached to the land and you will be required to abide by these rights as well as covenants (i.e., rules and regulations) refereed to therein.

Shared ownership is also available for Freehold Titles. You are still able to purchase off plan sites or newly built properties benefiting from a warranty. This means that you will own 100% of the Property, with some Freehold properties being bought under Help to Buy Schemes – subject to Help to Buy Criteria.

Dispute

Some disputes such as service charges disputes and determination of a lease extension premium are dealt with by the First-tier Tribunal Property Chamber.

The County Court can deal with other matters such as forfeiture or action against a landlord for not performing repairing the obligations under the lease.

If eligible, a leasehold owner of a house/flat have a legal right to compel the landlord to sell the freehold to them. There are different legal processes in place for buying the freehold of a house/flat.

There are no third parties referred to in the Title Documentation to assist in any disputes. It would be the Court’s determination which could be lengthy and expensive. Boundary disputes are the most common however the previous owner of the Freehold Title would have revealed previous arrangements during the transaction stage.

For more information on Lease Extension, Collective Enfranchisement, Right of First Refusal, Please click the ‘contact us’ button to email the Enfranchisement Team. Please click here to read more about our Property Services.


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