We have all heard the terms ‘leasehold’ and ‘freehold’ but how many of us actually understand what they mean? Here Will Oakes looks at why it’s a vital concept to grasp when you buy a home – and can help you avoid costly disputes in the long run.
It may seem like technical legal language, but there are few things more important about your home than whether it is freehold or leasehold.
It makes the difference between owning your own home outright and having a landlord.
And although estate agents tend to gloss over it, the difference can be between a home that is worth buying and one that isn’t.
Here is the difference in a nutshell:
What is a Freehold?
If you own the freehold, it means that you own the building and the land it stands on. It is your name in the land registry as “freeholder”, owning the “title absolute”. Freehold is pretty much always the preferred option: you can’t really go wrong with it.
You won’t have to pay annual ground rent, you don’t have a freeholder either failing to maintain the building or charging huge amounts for it and you alone have responsibility for maintaining the fabric of the building – the roof and the outside walls. Whole houses are normally sold freehold.
What is a Leasehold?
Leasehold means that you have a lease from the freeholder (sometimes called the landlord) to use the home for a number of years. The leases are usually long term – often around 100 years – but they can be shorter and this is where the danger lies.
When the term of the leasehold goes down to zero years, then the property reverts to the freeholder. So, if you have a 40-year leasehold, you only have the right to use the property for 40 years before it goes back to the freeholder unless you can negotiate a lease extension. The shorter the lease, the less it is worth.
A leaseholder has a contract with the freeholder, which sets down the legal rights and responsibilities of either side.
The freeholder will normally be responsible for maintaining the common parts of the building as well as the exterior walls and roof. Leaseholders will have to pay maintenance fees, service charges, and their share of the building’s insurance. They will normally also pay ground rent to the freeholder. A freeholder can also insist the leasehold comply with certain rules on property renovation, keeping pets, and subletting.
To find out more about lease extensions please visit our Lease Extension page.
In the news
The BBC recently explored the problems which arise from freeholder and leaseholder disagreements, speaking to a number of people who felt they had been misled when they bought their homes.
Katie Kendrick bought her home from Bellway in Ellesmere Port, Cheshire, three years ago for £214,000 but claims it has turned out to be “the biggest mistake I’ve ever made.”
Katie knew the house was leasehold but claims she was told by the sales representative that because of the long lease it was “as good as freehold”.
But a year and a half after her sale went through, she received a letter from Bellway saying her freehold had been sold to an investment company, which was quoting £13,300 for her to buy it.
What Bellway has done – selling a new home as leasehold, and then selling the freehold separately to an investment company without informing the family living there – is not illegal.
And for an investment company, buying groups of freeholds is a safe long-term investment. Receiving regular payments for ground rents – over leases that number well over 100 years – means safe, steady incomes, to fund things like pensions.
But Katie, who bought the house through the government‘s Help To Buy scheme, felt she had been misled.
Common disputes between leaseholders and freeholders include:
- Fees – with leaseholders often feeling their freeholder is over charging, but being able to do little about it.
- Maintenance – with leaseholders complaining that freeholders don’t maintain the building to a sufficiently high standard, or keep common areas clean and tidy.
- Breach of contract – with freeholders upset that leaseholders breach the terms of their lease, for example by making too much noise or not getting permission for building works.
But the sale of a freehold to a new “landlord” is an area that is affecting more and more freeholders.
What can you do?
The law does allow a leaseholder to force their freeholder to sell – but the leaseholder is liable for the legal fees of both parties, making this an expensive option.
If the developers were not clear about the leaseholds when the property was sold, the leaseholder may have a case of misrepresentation.
After all, anyone marketing a property is covered by consumer unfair trading regulations, which means that if there is anything that would affect their decision-making process, then they should be advised of that up front.
Attwells has a highly successful property litigation department and can advise on taking legal action against a freeholder or a tenant if necessary.
As well as looking to protect leaseholders, we can act for leaseholders and freeholders in disputes which include:
- Advising on a Section 146 Notice under the Law of Property Act 1925 for forfeiture of lease for breach of covenant – and issuing a counter-notice
- Preparing a pre-action letter of claim and lodging with the court details of any claim (a claim can be lodged with the court for four months without being served as a protective measure, while negotiations with a freeholder continue)
- Instructing experts in leasehold disputes, including surveyors, conveyancers, architects, and building experts
- Obtaining counsel’s opinion on any claim and quantum (the amount of any damages that might be claimed from the freeholder).