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Freehold and Leasehold Residential Property- What’s the Difference?


leasehold123It can sometimes be confusing to know the difference between a freehold and leasehold property and what effect this will have when you buy your home. Sean Sanders from Thackray Williams Solicitors explains what these terms mean >>

This means you own the land on which the property stands. You own the house and the land in their entirety, and they are your responsibility. That is why most houses are registered with a freehold title – you own the house and the land on which it stands.

This is a different type of ownership and usually applies where a larger building has been divided into two or more separate dwellings or units. This is usually the case where there is a flat or maisonette – because it forms part of a building.

The building and the land on which it stands will still have a freehold title, but the owner of the freehold can then create leases of the individual units – giving someone (called the leaseholder) a right to occupy each unit for a set period of time (usually 99, 125 or 999 years). That lease will impose on the leaseholder certain restrictions and obligations designed to make sure that no nuisance is caused to other occupants of the building and to govern their use of their unit in the building. There may also be an obligation to contribute to joint maintenance and insurance costs in respect of the building and to pay annual ground rent to the freeholder (as defined in the lease).

Once the lease is granted, it creates a leasehold interest (which is registered under a different title number at the Land Registry), and that lasts for the length of the lease. The right to occupy or use the flat for the remainder of the lease term can be sold on to subsequent flat owners by selling the leasehold interest.

If you are buying a flat that is described as ‘share of freehold’, it means that you are buying the leasehold interest in the flat – which means that you are buying the right to use and occupy that part of the building for the rest of the lease term, but it also means that at sometime in the past the freehold interest in the land has been bought by or transferred to all (or some) of the leasehold flat owners in the building. You will on completion of your purchase have the leasehold interest transferred to you together with the seller’s share in the freehold title.

This is an advantage because the lease will contain freeholders’ obligations (usually to insure and maintain the building and land), and if you and other leaseholders are now joint freeholders, you will have a say and/or control over future plans for the property. This avoids problems with freeholders who fail to provide adequate insurance cover or maintenance arrangements or who seek to charge large sums, or profit, from expensively dealing with such issues.

Owning a share of the freehold also means that when the lease term reduces (or requires any terms amended), all joint freehold owners can get together and agree on any leasehold changes without having to negotiate with a third party who might want to charge a large premium to allow you to extend or change your lease.

Your mortgage company will still regard you as buying the leasehold interest (i.e., the right to occupy that flat for the remainder of the lease), and they will want to take a mortgage over that leasehold interest as their security for the loan. The fact that you own a share of the freehold title would be a benefit to you – not only with regards to day-to-day arrangements in respect of the property but it should also make the flat more marketable when you wish to sell in the future.

Sean Sanders is a Partner at Thackray Williams Solicitors LLP.
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