What do ‘leasehold’ and ‘freehold’ mean?

What is Freehold ownership?

Freehold ownership means you own both the property and the land it stands on outright, for an unlimited time period. As a freeholder, you're the absolute owner of the property and the land, with your ownership registered at the Land Registry. This is often described as owning the property 'outright'.

Key Features of Freehold Property

Complete ownership when you own a freehold property, you own it completely, including:

• The building itself
• The land it stands on
• The airspace above (within reasonable limits)
• The ground beneath (typically to the center of the earth) – however this can be limited so that mines and minerals are owned by someone else.

No time restrictions unlike leasehold properties, freehold ownership:

• Has no time limit
• Continues indefinitely
• Can be passed down through generations
• Can be sold without lease-related restrictions

What is a Leasehold Property?

When you buy a leasehold property, you're purchasing the right to live in a property for a fixed period, typically between 99 and 999 years. Unlike freehold ownership, you don't own the building or the land it stands on – this belongs to the freeholder (also known as the landlord). Think of it as a long-term rental agreement with special conditions and rights.

The Lease 

The lease is a crucial legal document that sets out:

• The length of the lease term
• Your rights and responsibilities
• The freeholder's obligations
• Ground rent and service charge details
• Restrictions on property use
• Maintenance and insurance responsibilities

This document governs your relationship with the freeholder and is essential for understanding your position as a leaseholder and the extent of your ownership of your property.

Changes in the UK

It is estimated that around 4.5 million people in England currently own their homes on a leasehold basis. Leaseholds have been the subject of controversy in recent years with some homeowners trapped in onerous leases with ever-increasing ground rents. Reforms were announced by the Government that could give millions of leaseholders new rights, simplify the process and cap costs which could save homeowners thousands. 

The changes, which the Government has said are part of “the biggest reforms to English property law for 40 years", do not yet have a confirmed date for implementation but the Government says it hopes to legislate as soon as possible.

How do I know if my property is leasehold or freehold?

Flats are commonly sold as leasehold properties with the builder retaining the freehold or selling it to a third party, houses are usually sold as freehold, but this is not always the case and in the past decade, housebuilders have increasingly sold new build houses as leaseholds. 

Many council houses purchased in the 1980s are also owned as leasehold properties, as well as some older terraced houses.

When buying a property, the estate agent should detail the tenure of the property – whether it is freehold or leasehold – and your solicitor will check the status of any remaining lease. The property title deeds will confirm whether the property is freehold or leasehold, most property is registered with the land registry and you can visit the Land Registry website to search for an entry for your property to obtain a copy of your title.

Do I need to extend the lease?

If you own a leasehold property you have the right to extend your lease (granted under the Leasehold Reform, Housing and Urban Development Act 1993) if you’ve held the lease for two or more years. As your lease approaches 80 years in length, extending your lease becomes necessary. Under 80 years you become liable to pay 'marriage value' on top of the costs of the lease extension, and it can also make your property harder to sell. However, extending a lease can take considerable time and can cost £1,000s. You will need legal advice to extend the lease, a solicitor will be able to offer advice and by following the formal “statutory” leasehold route to extending the lease, you will also be afforded better protection should there be any disagreements in terms of costs or other disputes. There are also time limits with the formal route to lease extension to help prevent delays by the freeholder.

What charges and issues should be aware of with leasehold properties?

When purchasing or owning a leasehold property, it's essential to understand all potential costs and challenges. This guide outlines the key charges and issues you should consider before and during leasehold ownership.

Regular Financial Obligations

Ground Rent

• Annual payment to the freeholder
• Amount specified in the lease
• May increase periodically
• Can be fixed or variable
• New leases post-June 2022 have zero ground rent

Service Charges - These cover the building's running costs:

• Building maintenance
• Communal area cleaning
• Garden maintenance
• Building insurance
• Property management fees
• Security systems
• Lift maintenance
• Lighting in common areas
• Complying with legal obligations such as fire risk assessment reports

Before committing to a leasehold property or when facing issues with an existing one, it's crucial to understand all potential costs and challenges. Our experienced property team can provide comprehensive guidance to help you navigate these complexities.

How will leasehold change under the planned reforms?

The planned reforms come after the Law Commission proposed measures to make leases fairer and charges more transparent, while the Government has also said it plans to ban leaseholds on newly built houses. There isn’t currently a date for the reforms to come into place and information on timescales, technical legal details and how the changes will work in practice is yet to be released, however under the reforms:

• Leaseholders will be given a new right to extend their lease by 990 years with a ground rent at zero.
• Ground rent payable when a leaseholder chooses to extend their lease or become the freeholder will be capped.
• An online calculator will be introduced to make it easier to find out how much it costs to buy a freehold or extend a lease.
• Prohibitive costs such as ‘marriage value’ will be abolished.
• No ground rent if you buy a new retirement property.
• A ‘Commonhold Council’ will be established to 'prepare homeowners and the market for the widespread take-up of commonhold’. The council will comprise leasehold groups, industry and Government bodies.

Need Advice About Leasehold and Freehold Property?

Our experienced property team can help you understand your leasehold obligations and rights. Whether you're considering a purchase or facing issues with an existing leasehold property, we'll provide clear, practical guidance. Contact Hegarty for more information.