Leasehold vs Freehold vs Commonhold – Forms of Ownership

There is predominantly two different forms of legal ownership: leasehold and freehold. It is important to understand the distinction as getting it wrong can be an expensive mistake. Please contact your solicitor to confirm this with you.

What is freehold?

When you own a freehold, it means you own the building and the land upon which it lies. You are registered with the Land Registry as the freeholder and owning title absolute. Freehold is always the preferred option:

· Freehold properties are not required to pay ground rent.

· There is no issue of relying upon the freeholder to maintain and repair the building.

What is leasehold?

A leasehold means that you have a lease from the freeholder (sometimes called the landlord) to have enjoyment of the property for a period of years. The leases are usually long term – often 90 years or 120 years and as high as 999 years – but can be as short as 10 years.

• There is a contract between the leaseholder and freeholder, which confirms the legal rights and responsibilities of each party.

• The freeholder will usually have responsibility for maintaining the common parts of the building, such as the entrance hall and staircase, as well as the exterior walls and roof. Often, other leaseholders claim their “right to manage”, where they bear the responsibility for this with other leaseholder.

• Leaseholders are usually liable for paying annual ground rent, maintenance fees, annual service charges and a share of the buildings insurance.

• Leaseholders will have to obtain permission for any majors works done to the property.

• There may be other leasehold restrictions, such as not owning pets or subletting.

If leaseholders don’t conform the terms of the lease, the lease may have to be forfeited

Disputes between leaseholders and freeholders

There are slight disadvantages to owning a leasehold. These are highlighted below:

• Many leaseholders complain that lease charges are often unfair and unreasonable. There is not much that can be done about these as the landlords are charging within the terms of the lease. Annual charges need to be noted when purchasing a leasehold.

• All work that is done in the common areas is sanctioned by the leaseholder. Many leaseholders complain that they get little say in what works the freeholders conduct. Ensuring that the

• Freeholders can argue that leaseholders breach the terms of their lease for matters including but not limited to noise complaints and not obtaining permission for works.

• There is a declining value with leaseholds as the term of the lease is growing shorter. Once the lease has expired, it reverts to the freeholder. It is important to ensure that the length of the lease is sufficient for your purchase. Many lenders refuse to lend on leasehold properties where the length of the lease is not sufficient.

• It is possible to purchase many properties which have freehold qualities such as 999 year leases.

• It is possible to extend your lease.

Should I avoid buying a property on a short leasehold?

There are many factors to consider when purchasing a leasehold property. Typically, if the terms of the lease are fair, there is no issue in purchasing a leasehold property. It is important to consider the length of the lease and any annual payments when considering to purchase.

What is a commonhold property?

Commonhold refers to a multi-occupancy building which comprises of a number of freehold units. Each flat collectively acts as a Commonhold Association which effectively takes responsibility for the maintenance and repair of the common areas.

With this new form of tenure introduced in the Leasehold Reform Act 2002, there is no superior freeholder. However, owners act to form a management company accepting the rights and responsibilities of a leaseholder. This can be beneficial to protect from greedy landlords and issues with short leases. and s a variant of freehold, created by the Leasehold Reform Act of 2002, which overcomes some of the worst aspects of leaseholds.

But, as with any form of community ownership, problems and conflicts still can arise.

Please discuss with a member of our team the pros and cons of each tenure.