In the UK property market, understanding the differences between leasehold and freehold properties is crucial.
This knowledge not only influences your decisions as a buyer or seller but also impacts your legal rights and responsibilities.
In this article, our residential property expert, Erin Cronin, will provide guidance on freehold and leasehold property, and how changes may affect you.
Freehold explained
Freehold property ownership is often the preferred choice for many in the UK, offering the most complete form of ownership.
- Absolute ownership – Freeholders own their property and the land indefinitely, without the expiry dates associated with leaseholds.
- No ground rent – Freeholders are not liable for ground rent, offering financial advantages.
- Greater control – Freeholders have more control and responsibility including repairing, maintaining and insuring the property (subject to restrictive covenants, planning and regulatory limits)
- Responsibility for maintenance – All upkeep, including structures and gardens, is the freeholder’s responsibility. It is essential to factor these potential costs into your budget.
- Easier to sell or pass on the property – Freehold properties are more straightforward to sell and can be passed to heirs without leasehold complications.
While freehold properties offer freedom and control, it also demands significant responsibilities. Consulting a property solicitor is recommended to understand freehold ownership implications fully.
Leasehold explained
Leasehold properties are common in the UK, especially for flats and apartments
- Fixed lease term – Leaseholds have a set duration, commonly starting at 99, 125 or 999 years. The property’s value can decrease significantly as the lease shortens, especially below 80 years.
- Ground rent or service charges – Leaseholders typically pay ground rent and service charges for communal area maintenance.
- Covenants and restrictions – Lease agreements may include conditions like subletting restrictions, pet ownership or alteration limitations, with legal consequences for breaches.
- Maintenance responsibilities – While freeholders generally maintain the building’s structure and communal areas, costs are passed to leaseholders via service charges.
- Lease renewal and extension – Leaseholders can apply to extend their lease or buy the freehold (a process known as enfranchisement), although this can be costly and complex.
- Selling challenges – Selling a property with a short lease can be difficult, impacting its value and mortgage eligibility for buyers.
- Alteration permissions – Significant property changes will require freeholder permission.
Leasehold ownership can be complex, with various responsibilities and potential restrictions. It is vital for leaseholders to be fully aware of their lease terms, rights and obligations.
The Leasehold and Freehold Bill
The King’s Speech on 7 November 2023 proposed a Leasehold and Freehold Bill, marking a continued effort by the UK Government to reform the residential leasehold sector.
The bill, however, does not make it mandatory for all new flats to be freehold, nor does it ban new leasehold flats, acknowledging that commonhold is not yet fully functional.
Key proposed changes:
- Extension of lease terms – Extending statutory lease terms from 90 to 990 years, making repeated extensions unnecessary. This change is viewed as a practical step for both leaseholders and freeholders.
- Ownership requirement for lease extension – Removing the two-year ownership prerequisite for lease extensions, enhancing flexibility and reducing waiting times for new owners.
- Enfranchisement for mixed-use buildings – Increasing the non-residential limit from 25 per cent to 50 per cent for mixed-use buildings to qualify for enfranchisement, affecting more buildings.
- Banning new leasehold houses – Fulfilling a prior commitment, this likely affects only new builds.
- Estate management charges – Integrating estate management charges into service charge legislation, benefiting freehold owners on mixed estates.
- Valuation reforms – Aiming to make enfranchisement and lease extensions cheaper and easier.
- Ground rent cap – Consulting on capping existing long residential lease ground rents, with options including reduction to zero or capping at property value fraction.
The proposals hold potential benefits for leaseholders, such as making rights easier to exercise and the reduction of costs.
The exact implementation and timing of these reforms are uncertain, and the possibility of legal challenges or delays exists.
Individuals are advised to seek expert legal guidance based on their specific circumstances, especially considering potential general elections and ongoing political commitments to housing market reform.
Whether you are a leaseholder or a freeholder, understanding your rights and responsibilities is paramount.
If you need advice regarding a freehold or leasehold property, get in touch today for expert advice.