The definition of Freehold and Leasehold

Mon 03 Oct 2022

According to the Law of Property Act 1925, the definition of land involves not just the surface of the earth, but anything which is built on land, and any right attached to the land, such as a right of way. It also includes anything below ground land and anything above the ground.

In theory, ownership of land by law involves everything from the centre of the earth to the outer reaches of the atmosphere. However, this has been modified by Government so that, in practice, minerals below ground such as coal, oil, gold, and silver belong to the Crown and, of course, aircraft have the right to fly through the airspace above ground.

Also, since the Law of Property Act 1925 there have been 2 legal states which may be held in land and if you are investing in property you should be familiar with the phrases "freehold" and "leasehold”, so let’s take a look:

What is Freehold?

Freehold property includes both the building and the land it was constructed on when it is purchased. Until you transfer the freehold title to another person, you remain the 'forever' owner of it. Freehold is also known as fee simple absolute in possession.

*Note: If you purchase a home under joint ownership, certain homes may be leasehold. Also, make important to confirm the title status before buying a new-build home.

What is Leasehold?

When you purchase a leasehold home, you DO NOT get the land it was constructed upon. The majority of apartments have this. Typically, you will 'lease' the apartment from the entity that owns the building's freehold. A leasehold has a deadline. Therefore, if you purchase a home with a 100-year lease, ownership reverts to the freeholder at the end of that time. Leasehold is also known as a term of years absolute.

Freehold and leasehold differences

The difference between a freehold and a leasehold title has an impact on ownership and your obligations under the law. If a problem arises after you purchase a freehold home, you are accountable for fixing it, but as a leaseholder, the freeholder would be responsible for the building, roof, services and communal areas. Frequently, leasehold buildings have additional costs like service fees or ground rent (payments you make to the freeholder for the upkeep of the building). In addition, you must first submit an application to the freeholder before making any improvements to the property (such as installing new windows or demolishing a wall).

If you are purchasing a freehold property, you are likely to pay more than for a leasehold property in a similar location. You will have total authority over a freehold property, so you can make changes like adding windows or applying for an addition. If you are purchasing a leasehold property, the term of the lease is flexible and can be for any period agreed between you and the freeholder. Both short and long-term leases exist, short term leases are usually referred to as tenancy agreements, such as assured shorthold tenancies, for 6-18 months typically. Long-term leases are often for 99, 125 or 999 years. Leases give exclusive possession to the leaseholder for the duration of the lease, meaning that other people (including the freeholder) cannot enter the premises without the express permission of the leaseholder or tenant.

When searching leasehold property, such as an apartment or maisonette, you may spot a "bargain" and then realise it has a short lease. If this is the case you should be cautious as you may be required to pay for a lease renewal, which can run into hundreds or thousands of pounds. In addition, a lot of mortgage lenders won't finance a property with a short lease.

Head-lease and sub-lease

It is possible to create a lease from an existing leasehold interest and the newly created lease would become a sub-lease. Each newly created sub-lease would be for a shorter period of time than the previous one.

Commonhold

"Commonhold" is a system which allows a number of units to share a freehold. For example, a development of flats or apartments can share the freehold of the land and be jointly responsible for the upkeep and maintenance. This gives a lot more control to the leaseholders as they all have a say in the repair of the building, who is doing the work and the ultimate cost of the work.

Flying Freehold

A flying freehold occurs when a portion of a property is on top of, or beneath, the property of another party. It typically only constitutes a small portion of the property, such as a balcony that overhangs another person's garden or a basement that extends beneath a neighbour's house. Most of the time, property owners aren't even aware of having a floating freehold until the topic of renovation or sale comes up; at that point, it might be a subject of litigation. Always consult a professional when purchasing a property to check if there is a flying freehold.

Finally

When you are buying or selling a property in Maidstone, Larkfield, Headcorn or anywhere in Kent or England, there are 6 key reasons why you should be aware of the sort of tenure you possess:

1. You have discretion about what you do with a freehold property and when you do it. With a leasehold, your freeholder (or their management agent) chooses when maintenance is performed, how well it is done, and how much you will likely have to pay.

2. The annual costs for leasehold properties also include ground rent and service fees, but the latter usually includes building insurance. These can range in cost from a few pounds to hundreds or even thousands of pounds annually.

3. Due to the supplementary leasehold contract, purchasing or selling a leasehold property might take longer. You will also probably need to pay an additional £100 or more in legal expenses.

4. If you purchase a leasehold property, you should confirm the term of the lease because if it is 80 years or less, the value of the property may decrease and it may be more difficult to sell.

5. Leasehold homes may be more energy-efficient, often with an EPC rating of C, though this isn't always the case. With the Governments focus on energy efficiency and bringing all property up to a minimum C rating, it is likely that older freehold properties will require a lot more investment in their improvement in the near future.

6. While leaseholders pay a fraction of the cost and typically don't have to worry about organising the works, freeholders are 100% responsible for the complete cost of upkeep and repairs.

If you have any questions regarding this article or any property that you are looking to purchase, please get in touch.
https://www.eden-estates.co.uk/branches