What to consider and distinctions: Leasehold and Freehold

What distinguishes a freehold property from a leasehold one? Before purchasing a house, you should be aware of the differences between these two basic types of home ownership.

What distinguishes a freehold property from a leasehold one? Before purchasing a house, you should be aware of the differences between these two basic types of home ownership.

What is freehold

When you own a property freehold, you are the sole owner of the entire property, including the building and the ground it is built on. You hold the "title absolute" and are listed in the Land Registry as the freeholder. The less complicated type of home ownership is freehold.

• No yearly ground rent or lease extension is necessary.
• There is no need to rely on a separate freeholder to keep the structure up.
• You, the freeholder, are solely responsible for the building's upkeep and for overseeing the property.
• Since houses are stand-alone properties that come with the land they are built on, freehold is the most common manner to sell them.

What is leasehold?

The more complicated of the two types of home ownership, leasehold, is frequently found in apartment buildings or in neighbourhoods where several houses are combined to form a single, larger structure on a plot of land.

• A lessee purchases a property's lease from the freeholder.
• The legal obligations and rights of each party are specified in the lease agreement between the leaseholder and the freeholder.
• The roof and outside walls of the structure, as well as the common areas, are typically maintained by the freeholder.
• In addition to the initial purchase price of the leasehold property, the leaseholder must pay yearly maintenance costs, insurance for the buildings, and service fees.

What does the lease include?

All of the lease's specifics are detailed in the leasehold deed, including

• Length of the lease: It is typically an initial 99 or 125 years, although it may be shorter if it hasn't been renewed in a while. The sale price of the property typically reflects this.
• Ground rent: It is the amount of rent that the leaseholder owes the freeholder if they purchased the property prior to June 30, 2022, or if the remaining term of the lease is less than 21 years. Failure to pay may result in legal action and potential additional fees, which will be specified in your leasehold deed, and this may be assessed monthly or annually.
• Peppercorn rent: The Leasehold Reform Act of 2022 prohibits ground rent in most new leases from exceeding "one peppercorn per year," which means the freeholder is not permitted to impose ground rent or administrative costs.
• Obligations: With relation to the real estate and the building/common areas, these are the duties shared by the freeholder and the leaseholder.
• Rent hikes: Information about any ground rent increases that the leaseholder may anticipate, including the amount and frequency of those increases.

LEASEHOLD PROPERTY SERVICE FEES FOR

Most leaseholders will continue to pay service fees to the freeholder or organization in charge of property management even after the Reform Act. This includes all maintenance requirements for the structure housing the leaseholder's property. All expenses related to management, management, maintenance, and repairs are covered by service fees.

Typically, properties with amenities like resident lounges, concierge services, or recreational facilities would have higher service fees.

THE COSTS OF CONVEYANCING: FREEHOLD AND LEASEHOLD

Due to the leasehold contract's greater complexity, conveyancing legal expenses are probably going to be more expensive when purchasing a leasehold property than when purchasing a freehold one.

The process of establishing the terms and conditions of the leasehold agreement will typically generate more questions for the solicitors representing both the buyer and the freeholder. This results in a significantly higher conveyancing expense for the buyer.

Tips for purchasing a leasehold home

1. Regarding the period of the lease for the property you wish to purchase, be extremely explicit.
2. Check the cost of extending the lease if it is less than 80 years.
3. Verify the condition of the community areas and the payment of the communal electricity bills.
4. Make sure you are fully aware of the service fees and ground rent costs.
5. Verify any references in the lease to increases in ground rent or service fees.
6. Find out if the building needs any significant maintenance done to it or if there is a sinking fund that has to be deposited.
7. To determine whether you are permitted to rent out your property, check the contract.
8. Request the phone numbers of all necessary parties, such as the management agents or the freeholder.

PURCHASING THE FREEHOLD FOR A LEASEHOLD PROPERTY

Sometimes leaseholders have the option to buy the freehold of a building, giving them more control over the facility's management and associated costs.

When a leaseholder purchases the freehold on a home, they become the legal owners of both the home and the land it sits on. Only a part of the freehold can be purchased by the leaseholder of a flat collectively with the other leaseholders.

At least 50% of the leaseholders in the building must consent to each purchasing a share in order to purchase a share of the freehold. As always, legal counsel is essential.

Creating a commonhold is another way for leaseholders to acquire the freehold.

SHARED FREEHOLDS

Shared freeholds are an arrangement that is similar to commonhold in that all leaseholders jointly own the freehold. Each leaseholder of a leasehold property inside the development or complex owns a portion of the freehold, and all leaseholders share in administration of the building as a whole.

New-build houses Leasehold

Recent news stories have focused on leases for newly constructed homes.

The government has vowed to stop unfair practises using leasehold properties that have onerous restrictions for purchasers. As an illustration, some developers have offered leasehold homes with ground rents that double every 10 years or have sold the freehold to investment firms without disclosing the potential repercussions to the leaseholder.

The selling of leasehold homes will be prohibited by the government, save in "extraordinary situations." The proposed legislation will also forbid ground rent doubling clauses.