Looking at websites for anything related to Conveyancing, I see many questions from people who are unclear of the practical differences between owning a leasehold home and a freehold one. This is important for anyone looking to buy a property for the first time, or for someone who has not bought a property in England before, and I hope the following will highlight some of the major differences.
Flats and apartments in England and Wales almost always have leasehold titles, while houses are generally freehold. Sales details issued by agents do not always specify the class of title, and if there is any doubt you should contact your Conveyancing Solicitor for more information. (N. B. Beware the occasional freehold flat – it is difficult to get mortgages on such properties, so they are difficult to sell. )
The major difference between leasehold and freehold is that leaseholders have to comply with the terms of their lease. While this may be fairly simple in the case of a leasehold house, most leases of flats extend to many pages and are often daunting documents.
When you own a freehold property, you generally own every part of it – the land, the building, and everything on and under the land. The only exceptions normally are pipes and wires belonging to utility companies, and any minerals which belong to the state or have been ‘reserved’ by a previous landowner.
In the widest sense this means that you can do what you like with the property. Subject of course to planning legislation, and to any restrictions mentioned in the property title, you are free to extend or re-develop the property, or change its use.
As you own the building, you are responsible for maintaining and decorating it – or not, if you don’t want to spend the money. If you have a mortgage then the lender will expect you to maintain the property to a reasonable standard, but otherwise it is up to you to decide what maintenance work to carry out and when, and how much to pay for it. If you don’t want to do work yourself you have the freedom to choose any building or decorating contractor that you like, and can shop around for the best quote.
Subject to any lender’s consent you can let the property, and you could also sell part of your land if you wanted to.
Freehold homes may be subject to restrictive covenants which can limit the use of the property, as well as planning restrictions limiting further development. Your Conveyancing Solicitor will advise you about these.
Your Conveyancing Solicitor should explain the details of the lease to you, and supply you with a copy for future reference. Keep this safe, as you may need to refer to it from time to time.
These are some of the common provisions in any lease:
Description of the property
The exact extent of the property will be set out in the lease, and there is usually a floor plan. The lease will also say if you are entitled to use other facilities, such as a communal garden.
You cannot assume that you can use any other property or facilities. For example, if the lease of a flat at the top of a building does not specify that you can use any loft, then you cannot use the loft for storage or convert it into another bedroom.
Leaseholders have to pay their freeholder a ‘ground’ rent for their property. Sometimes this is a nominal amount, or a so-called ‘peppercorn rent’ (which means that nothing has to be paid. )
However the rent can be a substantial amount, and many residential leases contain provisions for the rent to be increased at specified intervals.
Building maintenance and service charges
With leasehold properties you usually do not own any part of the building except possibly the internal walls, plasterwork and decorative finishes. (The exceptions to this general rule are leasehold houses and self-contained maisonettes. ) The main structure of the building is owned by the freeholder, who should be responsible for repair and maintenance.
The downside of owning leasehold flats is that if the freeholder is responsible for services (such as building insurance, repair and maintenance, and the provision of other services such as heating and decorating common parts of the building) you will have to pay the freeholder (or his agents) for a share of the cost – but you have little or no control over when or how these services are provided or how much they cost.
The range of services which the freeholder should provide is specified in the lease, and you should ask your Conveyancing Solicitor to provide a copy of this and explain any details to you.
Freeholders often appoint managing agents to look after their properties, and collect the rents, but the leaseholders have to pay the charges of these agents in addition to the other service charges.
Although there is legislation which gives leaseholders some rights in respect of these service charges, freeholders have a wide discretion and often extract money from leaseholders in ways that are not apparent – for instance by having repairs carried out at an inflated price by a company which is owned by the managing agents.
In addition to these service charges many freeholders and their agents use every opportunity to levy substantial charges when they can. For instance they may require payment of a hefty fee for providing information required by a buyer’s Conveyancing Solicitor when a flat is sold, and then charge the buyer fees for registering the change of ownership as well as any mortgage.
Leases normally prohibit alterations without the freeholder’s consent. Although adding an extension to a flat is normally a physical impossibility, many owners do not realise that consent may still be required for minor works, such as changing or removing internals doors and partitions walls.
Carrying out alterations without consent often causes considerable delays when a property is sold, as buyers Conveyancing Solicitors will often require consent to be obtained retrospectively.
Leases almost invariably contain numerous covenants which the owner has to comply with. These include covenants to pay the rent and service charges, but also require the interior to be decorated at regular intervals.
Many of these covenants will be in the nature of restrictions – things you are not allowed to do. This often includes a restriction on letting the flat, and also extends to bans on keeping pets.
So which is better?
There is no simple answer to this question. It really depends on whether you want a house or a flat – if you buy a flat, either because of location or price, it will almost always be leasehold, while the majority of houses have freehold titles.
While you can find horror stories on the internet about bad freeholders, managing agents or neighbouring flat-owners, most leaseholders are either happy with their properties or put up with any minor problems.
Although freehold may seem to give greater freedom, you can still have problems with bad neighbours or find that the local council won’t give you planning consent for the extension you want to build.
Another key issue to bear in mind is that a lease runs for a finite period – typically 99 years. As the length of lease remaining so the value diminishes with lenders starting to get ‘jittery’ at around 70 years. Assuming the Leaseholder meets certain criteria they will have the right to carry out a Lease Extension and this complicated subject is discussed in detail elsewhere on this site.