Freehold v Leasehold

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Property ownership comes in two main forms in the UK: freehold and leasehold.

The freeholder owns the land on which the property is built. As a result they are entirely responsible for the property, covering everything from paying for repairs to arranging buildings insurance on the structure.

Things are slightly different with leasehold ownership. As the name suggests, you are essentially renting the property – albeit for a lengthy term, often of more than 100 years – from the freeholder. If you own a flat or apartment, this will usually be on a leasehold basis. The freeholder will own the land on which the apartment block is built, but there may be a host of different leaseholders within the building, who all own their own little chunk.

Leaseholders have to pay ground rent to the freeholder, as well as a host of maintenance fees to cover the cost of upkeep of the property.

This is an area that has become particularly newsworthy of late, after it emerged that some developers have been inserting clauses into the leasehold agreements of new-build properties which stipulate that the ground rent will double every decade. As a result, the cost of ownership of a leasehold property can swiftly escalate.

It’s not uncommon for some freeholders to hand maintenance contracts to other property firms they are involved with, which can lead to leaseholders paying far more than they need to for relatively basic work.

Leaseholders can come together to attempt to purchase the freehold of their property, though there are lots of conditions you will need to meet. For example, you will need to have at least 50% of qualifying tenants within the building taking part in the process (known as collective enfranchisement) while you can’t have any tenants that own two or more properties within the building.

It’s tremendously important though that you ensure you understand exactly what additional fees you will face on the property, and how they are likely to increase in the coming years. That’s where a good conveyancer comes in – they will be able to highlight precisely what your leasehold agreement contains and what it means for you.