THE DIFFERENCE BETWEEN FREEHOLD PROPERTIES AND LEASEHOLD PROPERTIES
(Houses and Flats)
1. What is a Freehold ?
A Freehold owner of a property owns the property outright and the land upon which it stands. The Freeholder is usually responsible for maintaining and repairing the property.
2. What is a Leasehold ?
A Leasehold owner owns the property subject to a Lease. A Lease is usually an agreement between the Freeholder and the owner of the property (which is usually a flat but sometimes can be a house). The Lease allows the owner sole possession of the property for a term of years. Once the Lease expires, ownership of the property reverts to the Freeholder.
3. Common Features of A Lease
A. Service Charge
Typically a Leaseholder owns a flat which forms part of a block of flats. The Freeholder will usually be responsible for the repair and maintenance of the building. The Freeholder will be able to recover the costs of that repair and maintenance by way of a service charge.
Each Leaseholder in the block will be required to pay their proportion of the service charge which usually includes a management fee. Service charges are often payable twice yearly.
B. Ground Rent
Usually but not always a Leaseholder will be required to pay ground rent, the amount of which is governed by the terms of the Lease. It can sometimes rise quite substantially during the Lease term.
C. Restrictions on the Lessee’s use of the property
The Lease will contain covenants and obligations, some of which will be restrictive in nature, such as a covenant to obtain the Freeholder’s permission prior to carrying out alterations to the property.
4. Areas of Concern for Leaseholders
There are potential areas of dispute between the Freeholder and Leaseholder and the most common one is in respect of repairs and maintenance.
For example, Leaseholders might think their building is not being sufficiently maintained or that the management charges are too high.
If the Leaseholders of a building are unhappy with the management of it, there is legislation in place to enable them to take over the management by setting up their own Management Company.
B. Extending the Lease
There is also the option for the Leaseholders to purchase the freehold. If they do this, they will normally need to set up their own company to own the freehold and the company can either be limited by shares or by guarantee.
Once a Lease has less than 80 years remaining, this can significantly affect the value of a property and the Leaseholder will need to seriously consider extending their Lease. The Freeholder is entitled to charge a premium for the Lease extension.
The Freeholder is under no obligation to extend the Lease unless the Lessee has owned the property for two years and they are a qualifying tenant which will usually be the case if the original Lease was for a period of more than 21 years.
If the Lessee is a qualifying tenant the Freeholder is obliged to extend the Lease by an additional 90 years at a peppercorn ground rent if the property is a flat.
The Lessee will be required to pay a premium to the Freeholder. If you or the Freeholder cannot agree on the cost of extending the Lease, the legislation provides for an appeal to the Leasehold Valuation Tribunal.
The above explains the position in reference to flats. There are different rules for houses.
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