When it comes to owning a property in the UK, there are two main, distinct types of ownership.
The most straightforward is freehold. With this form, you own the land on which the property is built. Things are a little more complicated if you own a property on a leasehold basis. What’s more, even then you only own it for a fixed term - the length of the lease.
As a result, you will have a ‘landlord’, the freeholder, who owns the land on which the property is built.
This can bring with it a host of additional costs, such as maintenance fees and ground rent.
Typically, flats, apartments and maisonettes are owned on a leasehold basis, with houses available on a freehold basis. That said, there are regional variations; leasehold houses are more common in the north west of England than elsewhere in the UK for example.
The issue of leasehold ownership has caused much consternation in recent months.
One issue has been that increasingly property developers have built and then sold houses on a leasehold basis, with these leasehold agreements tying buyers into punishing terms which may have been overlooked when they went through with the purchase.
For example, it has emerged that some of these agreements have included the doubling of the ground rent every ten years.
What’s more, some developers have then sold on the freeholds for these properties quickly after selling the leasehold, often without actually telling the homeowner.
While landlords are required to inform the leasehold owner of a flat or apartment if they intend to sell the freehold, and give them the opportunity to buy it, that rule doesn’t apply to leasehold houses.
As a result, the government has stepped in, outlining proposals which will prevent leasehold being exploited by developers.
This includes banning new-build homes from being sold on a leasehold basis, and setting ground rents on long leases at zero, and ensuring they remain at that level.
The length of a lease can vary significantly, but there are potential consequences from it running down too low.
For example, some mortgage lender are unwilling to offer mortgages against properties if the current lease is lower than 55 years.
As a result, you might want to extend the lease on the property; generally, you are legally entitled to be able to extend your lease at a ‘fair price’.
You can employ a surveyor to work out exactly how much that will cost and then inform the freeholder of your intentions.
It’s not unusual to be in the dark over precisely who owns the freehold of your property.
The easiest way to get an answer is to head over to the Land Registry website. It costs just £3 to purchase the title plan for any property, whether you own that property or not. All you need to enter is the door number and postcode.
‘Collective enfranchisement’ offers leaseholders the opportunity to come together to purchase a freehold if they wish to.
They will need to meet certain criteria in order to do so though. For example, the group of leaseholders must represent at least 50% of the building’s flat owners, and all have an outstanding lease of at least 21 years.
This group will then need to get a valuation of what the leasehold is likely to cost and appoint solicitors to handle their case. They can then issue the freeholder with an Initial Notice, which will outline their terms for purchasing the freehold.
The landlord will then have to issue their own notice in reply within two months, which will detail if they agree to the sale and if not, their reasons for doing so.
If all parties are unable to negotiate a price, then the case can be taken to a First Tier Tribunal, which will set a price for the deal.
It’s a good idea to refer to the Lease Advisory Service, which has a suite of guides and leaflets which can help make the process much easier.
This is what happens when you band together with other leaseholders to buy the freehold. If the transaction is successful, you and your neighbours will own a share of the freehold.
Remember, owning a share of the freehold will come with additional responsibilities; as a collective, you will need to organise things like buildings insurance and maintenance.
Some lenders are reticent about offering a mortgage against a freehold flat. Your best option will be to speak to a mortgage broker, who is best placed to know which lenders will be willing to offer finance against such a property.
Commonhold is a very rare form of tenure which is distinct from both freehold and leasehold. It was launched in 2002 and is designed to cover properties which share common areas with other properties, for example flats which share hallways and the lifts.
Under this form of tenure, these shared areas are overseen by a Commonhold association.