There are two fundamentally different forms of legal ownership: freehold and leasehold. Although estate agents tend to gloss over it, the difference can be between a home that is worth buying and one that isn’t. Many people who don’t sort this out when they buy a home end up regretting it – getting it wrong can be hugely expensive.
For starters, it may seem like a technical legal language, but there are few things more important about your home than whether it is freehold or leasehold. It makes the difference between owning your own home outright, and having a landlord. In this article we will be looking at the basic difference between Leasehold and Freehold in relation to their merits.
What is Leasehold?
Before we talk about leasehold let us first define its parent body;
A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a leasehold estate is typically considered personal property.
Therefore, leasehold is a form of land tenure or property tenure where one party buys the right to occupy land or a building for a given length of time. As lease is a legal estate, leasehold estate can be bought and sold on the open market. A leasehold thus differs from a freehold or fee simple in some parlance where the ownership of a property is purchased outright and thereafter held for an indeterminate length of time, and also differs from a tenancy where a property is let (rented) on a periodic basis such as weekly or monthly.
Until the end of the lease period (usually spanning around 30, 60 and 90 years; a 99-year lease is quite common) the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner. Terms of the agreement are contained in a lease, which has elements of contract and property law intertwined.
The following key facts must be noted;
• A leaseholder has a contract with the freeholder, which sets down the legal rights and responsibilities of either side
• The freeholder will normally be responsible for maintaining the common parts of the building, such as the entrance hall and staircase, as well as the exterior walls and roof. However, other leaseholders might have claimed their “right to manage”, in which case it is their responsibility
• Leaseholders will have to pay maintenance fees, annual service charges
• Leaseholders normally pay an annual “ground rent” to the freeholder
• Leaseholders will have to obtain permission for any majors works done to the property
• Leaseholders may face other restrictions, such as not owning pets or subletting
• If leaseholders don’t fulfill the terms of the lease – for example, by not paying the fees – then the lease can become forfeit
What is freehold?
Freehold is the ownership of real property, being land and all immovable structures attached to such land. This is opposed to a leasehold in which the property reverts to the owner of the land after the lease period has expired. If you own the freehold, it means that you own the building and the land it stands on outright, in perpetuity. It is your name in the land registry as “freeholder”, owning the “title absolute”. Freehold is pretty much always the preferred option: you can’t really go wrong with it.
Immovable property includes land and all that naturally goes with it, such as buildings, trees or underground resources, but not such things as vehicles or livestock (which are movable).
A freehold estate could be transferable to the owner’s “heirs and assigns” also known in some parlance as ‘OMONILES’(successors by inheritance or “purchase” [including gift], respectively), in which case it was a “fee simple” estate.
For an estate to be a freehold it must possess two qualities: immobility (property must be land or some interest issuing out of or annexed to land); and ownership of it must be of an indeterminate duration. If the time of ownership can be fixed and determined, then it cannot be a freehold.
A freeholder, or one who is in freehold, was therefore not a vassal.
• You won’t have to pay annual ground rent
• You don’t have a freeholder either failing to maintain the building, or charging huge amounts for it
• You have responsibility for maintaining the fabric of the building – the roof and the outside walls
• Whole houses are normally sold freehold
Disputes between leaseholders and freeholders
It is very common to have tension between freeholders and leaseholders.
• Fees are a major source of contention, with leaseholders often feeling their freeholder is over charging, but being able to do little about it.
• Leaseholders often complain that freeholders don’t maintain the building to a sufficiently high standard, or keep common areas clean and tidy
• Freeholders often complain that leaseholders breach the terms of their lease, for example not getting permission for building works
Albeit the major difference between this leasehold and freehold in most jurisdiction is basically land ownership tenure. While the ownership tenure in freehold is for life, that of leasehold is solely dependent on the government which usually spans for decades, maybe a century.