What’s the Difference between Freehold and Leasehold?

Leasehold flats by river in Norwich

What’s the Difference between Freehold and Leasehold?

In the world of UK Property, two of the most common words you will encounter are freehold and leasehold. Most people do not understand the difference between the two, Sell My Ground Rents sell the difference below.

Freehold properties:

A freehold property typically is a house or bungalow, as the land and building are owned outright – rather than on a lease.

Leasehold properties:

Flats and apartments are usually leasehold, with the occasional house, which means you own a lease to a property (effectively inside the property) but not the walls, ceiling, floor or land underneath it. Leases are typically used to ensure a building maintained and looked after each flat has been sold – as it stands freeholds cannot include these details.

Most flats, when originally sold, are agreed on a Leasehold basis.

Those who own a leasehold property are typically known as a lessee, leaseholder or tenant; whilst the person owning the freehold is known as the freeholder or landlord.

When a leaseholder buys a, new or existing, leasehold flat they enter into a legal agreement with the freeholder – which will stipulate terms of how the property should be looked after, it’s length, associated costs and each party’s responsibilities. Most residential long leases are granted for 99, 125, 250 or as long as 999 years.

Landlord’s responsibilities:

Landlords / Freeholders are typically responsible for a properties’ communal up keep.

Landlords typically look after managing, maintaining and insuring a freehold building – ensuring communal spaces are clean and cared for. Naturally all three of the aspects incur cost, which depending on the lease are then collected either in arrears (once completed) or by budgeting for these works in advance. To recoup these costs demands and invoices must be served annually, any major works require a legal notice to be served on the leaseholders. If demands and notices are not served correctly, tenants can bring legal action against the freeholder.

At Sell My Ground Rents we have professional property managers to take care of both the leaseholders and our properties. Whether it be cleaning, insuring or organising property maintenance they ensuring all notices are served correctly – helping keep tenants’ payments up to date.

Some leaseholders simply do not pay, regardless whether formal demands have been sent, whether it be initial letters, follow up emails or telephone calls – all very time consuming and leaving the freeholder out of pocket.

Tenant’s responsibilities:

Whether it be paying the ground rent, keeping noise down or maintaining their own flat, Leaseholders have many responsibilities.

As per the lease entered in to when buying a flat or apartment, new or old, the leaseholder buys / enters in to the existing agreement. The tenant then has to adhere to those terms, whether it be no loud music after 10pm, contributing a proportion of all costs to management and maintenance or paying ground rent. Failure to pay ground rent can result in the freeholder taking legal action to claim arrears, this can result in additional charges and potential forfeiture (giving the flat back to the freeholder).

When leaseholders purchase a property solicitor typically provides a copy of the lease and highlight relevant terms; a lease should be read fully to ensure it is not breached. Examples include; leaseholders paying an annual licence fee to the landlord allowing them to rent the property and freeholders forcing leaseholders to stop using their property for short, and holiday, lets such as AirBnB.

Why would you want to sell a freehold?

Ground Rent and Service Charge Arrears. Hassle to Freeholders.
Freeholders typically pay for maintenance and insurance, collecting incurred costs in arrears – occasionally making it costly to be a freeholder.

As a freeholder there is a legal onus to manage and maintain a property, it’s likely at some point leaseholders will be in arrears which the landlord has to fund for the interim period. With older, and extended leases, ground rents tend to be minimal with it almost as much hassle in time and costs as the amount collected. Recent suggested leasehold reform is designed to make the lease extension process fairer, easier, quicker and cheaper – all beneficial for the tenant, though understandably not for the owner.

Sell My Ground Rents are active ground rent investors, looking to purchase freehold blocks of flats – whether it be 2 or 200 flats we are interested. Complete our online form, or give us a call, to discuss further and receive an offer.

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