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Freehold vs Leasehold Property Ownership

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Parent and child outside a freehold property, representing freehold vs leasehold

Considering purchasing a property but not sure what the implications of freehold and leasehold property ownership are? In this short guide, we look at the advantages and disadvantages of each type.

How do freehold and leasehold properties differ?

The difference between freehold and leasehold property pertains to the ownership rights and tenure of the property.

Freehold Property

Owning a property as a freehold means having full ownership of the property and the land on which it stands, indefinitely. This is the more absolute form of property ownership, as it grants the owner complete control over the land and buildings, subject to local laws and regulations. Freeholders can make alterations or dispose of the property as they see fit, without the need to pay ground rent or obtain permission from a landlord.

Leasehold Property

Leasehold ownership, on the other hand, means that the property is owned for a specified length of time, which can be decades or even hundreds of years as stated in the lease agreement. The land on which the property stands is owned by another party, known as the freeholder or landlord. As a leaseholder, you have the right to use the property as your own during the term of the lease, but you may have to pay an annual ground rent to the freeholder and obtain their permission for certain types of alterations or subletting. Once the lease expires, ownership of the property reverts back to the freeholder, unless an extension on the lease is negotiated.

Leasehold properties are common for apartments and flats in urban areas, whereas freehold properties are typical for standalone houses.

How do I know if the property I plan to purchase is leasehold or freehold?

There are various ways you can check this.

  • Examine the property deeds – The simplest way to confirm if a property is freehold or leasehold is to examine the property deeds. These documents should clearly state the nature of the ownership. If you own the property, you should have access to these deeds. If not, you might request them from the solicitor who handled the property transaction.
  • Check the details through the Land Registry – If the property deeds are not readily available, you can check the property’s registration details through the Land Registry (now part of the Property Registration Authority of Ireland). Properties registered with the Land Registry will have their title (freehold or leasehold) clearly noted in the official records.
  • Speak to a conveyancing solicitor – Consulting a solicitor or conveyancer can also provide clarity. Your conveyancing solicitor can access various databases and documents on your behalf and explain the implications of the property being freehold or leasehold.
  • Check local authority archives In some cases, especially if the property is older or if there are complications with the records, local authority archives might hold relevant information, although this is less common.
  • Estate Agents – If you are considering purchasing a property and are unsure of its status, estate agents can also be a useful source of information, as they often have details about the tenure of the properties they are selling.

Understanding whether a property is freehold or leasehold is crucial because it affects your rights, responsibilities, and potentially the value of the property.

What are the advantages of freehold properties?

Freehold ownership means owning the property and the land on which it stands outright, with no time limits, granting the owner full control over the property. Unlike leasehold, freeholders do not have to pay ground rent or annual service charges, which significantly reduces the long-term costs of property ownership. Furthermore, freeholders face fewer restrictions on the use of their property as there are typically no lease conditions limiting modifications or requiring permission from a landlord for changes. This greater degree of autonomy often makes freehold properties more attractive to buyers, providing more stability and security, which can enhance the potential for long-term capital appreciation. Additionally, properties with freehold tenure are generally easier to sell since they lack the complexities associated with leasehold, such as concerns over the length of the lease.

What the disadvantages of freehold properties?

As a freeholder, you bear the full responsibility for all maintenance and repairs of the property and its grounds, which can be more costly and time-consuming than in a leasehold scenario where these tasks are typically managed by a company. Freehold properties often come with a higher initial purchase cost compared to leasehold properties, potentially posing a barrier for some buyers. Even in developments with shared facilities or spaces, freeholders may still need to engage with management companies or contribute to the upkeep of these shared areas, similar to leasehold arrangements. Additionally, freeholders might find themselves directly involved in disputes over boundaries or shared services such as access roads, which can lead to legal challenges. They are also subject to local planning regulations, which means that significant property modifications, such as extensions or major renovations, require planning permission.

What are the advantages of leasehold properties?

Leasehold properties are generally more affordable than freehold ones, making them a more accessible option for first-time buyers and those on limited budgets. In many leasehold arrangements, particularly in flats or apartments, the responsibility for maintaining common areas, the building’s structure, and the exterior is handled by the landlord or a management company, reducing the maintenance burden on individual leaseholders. Additionally, leasehold developments often come with shared amenities such as gardens, gyms, and security services, amenities that might not be economically feasible for individual freehold property owners to implement on their own.

What are the disadvantages of leasehold properties?

Leaseholders typically face financial obligations such as ground rent and service charges for the upkeep of common areas, and these costs can escalate over time depending on the lease terms. Additionally, leasehold properties often carry restrictions that may limit subletting, alterations, and general usage, with bureaucratic and costly processes needed to secure permissions for changes. A significant drawback of leaseholds is the finite nature of ownership, which is restricted to the lease’s duration. As the lease shortens, the property’s value may depreciate, complicating sales or mortgaging, and extending the lease can be an expensive and complex legal affair. Moreover, leaseholders often lack complete control over their properties, as decisions about building management are usually made by the freeholder or a management company, which can lead to disagreements and dissatisfaction. This can also result in contentious relationships with freeholders or management companies, especially concerning issues like maintenance fees, service quality, or the costs associated with building works.

What is the statutory ground rents purchase scheme?

The statutory ground rents purchase scheme allows leaseholders of certain properties to buy out the ground rent on their properties, effectively converting their leasehold interests into freehold. This scheme is particularly relevant to homeowners who hold long-term leases and are subject to annual ground rents to a freeholder. The scheme is governed by the Landlord and Tenant (Ground Rents) (No. 2) Act 1978 and its amendments.

Tenants who hold their property under long lease can always try to agree to acquire the freehold from the freehold owner consensually. The price agreed tends to be a relatively low price, similar to the price that would be set by the statutory scheme. In many cases this will not be possible either because the freehold owner is unknown or simply will not agree to sell.

To purchase the ground rent under the statutory scheme, tenants must satisfy all of the conditions of section 9 and one of the alternative conditions in section 10 of the 1978 Act. Generally speaking, where the tenant has constructed buildings and carried out works which have increased the value of the land they have the right to buy out the ground rent and thus acquire the landlord’s interest.

Require assistance legal assistance with your property purchase?

If you are considering purchasing a property but require advice on the legal implications of the transaction, the conveyancing team at McCarthy + Co Solicitors LLP will be glad to assist you. Arrange a consultation with us today by completing our confidential property consultation request form.

Joseph McCarthy

Joseph has been an integral member of our team since 2013, bringing a unique blend of expertise and dedication to his role. His specialisation lies in private client work, with a focus on conveyancing and probate. In simpler terms, Joseph’s role involves assisting homeowners and prospective homeowners in their property buying or selling journeys. He also offers support in managing the affairs of deceased individuals, guiding next of kin and executors through every stage of the process from the moment of a person’s death. Additionally, Joseph provides assistance in will drafting, ensuring his clients have peace of mind for the future. Joseph also regularly assists clients in creating Enduring Powers of Attorney and advises clients and their families on how to manage circumstances where a person’s mental capacities may be impaired.

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