For anyone looking to buy property in the UK, it is important to understand the distinction between freehold and leasehold ownership. While they may sound similar, there are important legal differences between these two common types of property tenure. Whether you are a first-time homebuyer or an experienced investor, this overview will provide useful insight into the UK’s leasehold and freehold systems.

Freehold

What is a freehold property?

Freehold property refers to ownership of the land and building in perpetuity. With a freehold, you own the property outright, including both the physical building and the ground it stands on, for an unlimited period of time. Freehold properties are commonly houses, but you can also buy a flat in a communal building with a share of the freehold.

There are no time constraints on how long you can possess the land and building. Provided you meet your responsibilities as the freeholder, the property can remain in your family for generations.

Rights of the Freeholder

One of the main benefits of owning a freehold property is the extensive rights this tenure provides. As the freeholder, you have outright ownership of the building and land indefinitely, which gives you full control over the property.

You can choose to sell the freehold property or lease it out whenever you want – the decision rests solely with you as the owner. Subject to planning permission, you can renovate, extend or modify the property as you wish, and you can leave or gift the property to your children or anyone else you choose. You can also change how the property is used, such as converting it between residential and commercial uses.

Responsibilities of the Freeholder

While freehold owners enjoy extensive rights, they also take on certain obligations:

Maintenance and repairs: The freeholder is solely responsible for maintaining the entire property and any costs involved. This includes both internal upkeep and external repairs, from dealing with damp and mould to handling pest control issues.
Insurance: The freeholder must take out adequate building insurance to cover rebuilding costs in case of damage.
Mortgage payments: If financed, the freeholder must keep up with any mortgage payments and associated costs. Failure to do so could result in repossession.
Property taxes: The freeholder is liable for payment of all property taxes, such as stamp duty and council tax.
Planning permission: Permission must be sought from local authorities for any major additions or alterations.

When it comes to buying, selling, or inheriting, the legal transfer process for freehold properties is relatively straightforward compared to leaseholds. If selling, the freeholder can market and sell the property for whatever price the market will bear. The conveyancing process is simpler with no lease terms or restrictions to consider. For buyers, they take on all the rights and responsibilities of the freeholder outlined previously.

Leasehold

What is a leasehold property?

A leasehold property refers to ownership of a building and the right to use the land it stands on for a fixed period of time; they’re more common with flats because of this structure. With a leasehold, you do not own the freehold. Instead, you purchase a lease from the freeholder that grants you the exclusive right to use the property for a number of years.

The key characteristic of a leasehold is that you only have ownership of the property for a defined lease term. The length of the lease can vary enormously, typically from 90 years up to 999 years on newly built leaseholds. But there is always a set time limit.

Once the lease expires, ownership returns to the freeholder unless the leaseholder renews the lease agreement. While you have certain rights during the lease period, the freeholder retains overall control and puts conditions on how you use the property.

Rights of the Leaseholder

While leasehold owners have more limited rights than freeholders, their lease agreement does grant them certain rights for the term of the lease. Leaseholders have the legal right to exclusively occupy and use the property during the lease period, subject to any terms and conditions. They can also sub-let the property, however, the freeholder’s consent may be required to do so.

Leaseholders can renovate or make improvements to the property internally but, again, they may need the freeholder’s permission for more substantial changes. Depending on the individual lease terms, leaseholders may have rights to extend the lease or renew in order to maintain occupancy once the initial period expires. The lease often allows leaseholders to have input on service charges and management of any shared areas by the landlord.

Responsibilities of the Leaseholder

In addition to more limited rights, leasehold owners also take on various obligations:

Paying ground rent and service charges: Leaseholders must pay an annual ground rent and service charges to the freeholder for the duration of the lease period. However, the Leasehold Reform Act has impacted these costs for new leases granted on or after June 2022.
Maintaining property: Leaseholders are typically responsible for internal upkeep and repairs to the property. Externally, the freeholder normally covers maintenance.
Abiding by lease terms: Leaseholders must adhere to all conditions and restrictions in the lease document. This often includes gaining consent from the freeholder for substantial changes or subletting.

When buying or selling a leasehold property, there are also important legal factors for both parties to consider. The buyer should carefully review the remaining length of the lease, any annual payments due, and any terms that may restrict or complicate a sale. Consent from the freeholder is often required to legally assign the lease to a new buyer which can slow down the process in some cases.

Administration fees to formally change the registered ownership of the lease are also common when a sale is completed. If the lease is short, the buyer may want to look into extending it before expiry, which involves a formal legal process but provides longer security of tenure.

While freeholds offer owners full control and long-term security over both the property and the land it stands on, leaseholds provide a way to acquire rights to a property for a specified period without owning the underlying land. Each type comes with its own set of rights, responsibilities and legal considerations. By learning the core legal distinctions between freehold and leasehold ownership, buyers and sellers can make informed decisions aligned with their needs and circumstances.

Written By Annie Button

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