Understanding Freehold, Leasehold and Commonhold Tenure - Ask the Experts 

News at Kerr & Co | 14/03/2024

Understanding Freehold, Leasehold and Commonhold Tenure - Ask the Experts 

What is a Freehold Property ?
A Freehold property is the outright ownership of the property and the land on which it stands, and the entitlement to permanent residency until you want to sell.  This entitles the owner to make moderations to the property within restrictions of the law and planning restrictions particually when making structural changes to old and listed buildings.

Most houses in England and Wales are sold as a freehold. Flats however can be sold freehold, but they are usually sold as leasehold in a larger as they are often in larger developments . However, flats are increasingly becoming freehold because of a government legislation making it easier for leaseholders to buy the freehold.

What is a Leasehold Property ?
Leasehold means that you have bought a property with a lease from the freeholder (also known as the landlord). Leasehold properties are common – they are usually flats – with 19% of English housing stock consisting of leasehold properties, according to government data.   When you purchase a leasehold property,  you will enter a legal agreement with the freeholder called a ‘lease’. The lease will show how many years you’ll own the property. Leases are usually long term – typically 90 to 120 years or as high as 999 years – but they can be shorter, such as 40 years

The freeholder however will own the building and the land it stands on. As a leaseholder you have a contract with the freeholder, laying out the length of your lease in years, plus the legal rights and responsibilities of whist you are in ownership of the lease.

Freeholder / Leaseholder Resposibilities 
The freeholder is usually responsible for maintaining communal parts of the building, such as the entrance hall and staircases, as well as exterior walls and the roof. However, in some cases existing leaseholders may have claimed the ‘right to manage’, the property and in this case it will be your responsibility.   Leaseholders are required to pay maintenance fees, annual service charges and a share of the buildings insurance.
Leaseholders normally pay ground rent to the freeholder this can be from any amount from £50 to a couple of thousand to contribute to the up keep of the building and cover buildings insurance and repairs.

Can you make changes to a leasehold property or carry out building work ?
If you are buying a leasehold property, you will have to obtain permission from the freeholder for major building works.  If you don’t comply with the terms of your lease, you could find the lease is forfeited and your home is repossessed by the freeholder.  You may find there are other restrictions on your leasehold property such as a ban on pets and subletting. The lease can also state things like the requirement to have carpeted floors.

Why buy a leasehold property?
Buying a leasehold property is often a more affordable option to getting onto the property ladder and it’s a common way to own property particularly if you’re buying a flat. Many homeowners prefer the advantages of extra security, lower maintenance responsibilities and a unique community neighbourhood in a building .

Advantages of buying a leasehold property 
Leasehold properties often are more attractively priced as a result, other advantages include the general maintance and repairs of the communal areas, as the Freeholder is  responsible for making sure the communal areas are kept up to a good standard ensuring the overall building is kept in a good state of repair. This avoids you having to get into arguments with your neighbours about keeping the hallways clean, changing lightbulbs in stairwells or weeding the shared gardens. Another advantage of buying a leasehold property as you don't have to arrange buildings insurance for your home. The freeholder will do this however you will still need to organise contents insurance for your flat though.

However, it is wise to understand the plus points and the minuses to the owning a leasehold this can include the following :
  • Budget for service charges and ground rent - as these charges can increase.
  • Seek and obtain permission from the freeholder for building works on your home, and you may need to pay.
  • Look out for lease restrictions on how you use your home including banning sub-letting, pets or running a business from the property.
  • If you have a short lease – 80 years or less this may be harder to sell your home and may need an extension before going on the market.
Leasehold property can be viewed as a mixture of owning your own home but also have a long-term rental with a landlord. This means it will come with restrictions and extra costs, however they are often the most affordable way to owning your own home and getting onto the property ladder .

What is a Commonhold Property ? 
Commonhold is a relatively new idea and was first introduced in England in 2002, by the government with simular schemes around the world and is an alternative to a leasehold ownership of flats.  New homes can currently be sold as commonhold, and existing leaseholders can convert to commonhold if they are able to meet certain criteria.
With commonhold, you and other owners have a say in how your building is managed, including the costs and responsibilities that come with this. There is no overall landlord, instead there is a freehold owner, which is now a company called a commonhold association. The owner of each flat is a member of the association (i.e if you buy a commonhold flat, you will be part of the association). The commonhold association is responsible for maintaining the communal areas of the building.

The advantages of having a commonhold are many as, there is no set period where it runs out  - you are one of the freeholders until you sell.  All decisions regarding the building are made jointly by the property owners. There will be a standardisation of documentation which is the same throughout all commonhold properties .  Finally what appeals most to new buyers is that with a commonhold, the property won’t lose value, unlike with leasehold properties that lose value as the period of the lease gets closer to its expiry date.

Leaseholders can convert to commonhold, but every leaseholder will have to buy the freehold together, and everyone in the building must agree to convert to commonhold.  This arrangement appeals to buyers, and is favoured over leasehold.

More information 
Responsibilities and Rights of a Leaseholder
Understanding Commonhold properties

If you a looking to sell your property in the next 6 months and need support in guiding you through the process Kerr and Co have over 30 years experiance in Estate Agency .  If you would like a conversation to guide you through your next steps marketing your property please contact us at [email protected] or call us on 0208 743 1166