Reference

Leasehold and freehold

The two words describe two quite different things being sold. The distinction matters most where households share a structure.

Freehold: the land and what stands on it

Freehold ownership is ownership of the land and the building on it, without a time limit. Most houses are sold this way. The owner is responsible for the whole structure and, subject to planning and any rights attached to the title, decides what happens to it.

Freehold is not unqualified. Titles routinely carry rights of way, shared drains, covenants restricting what may be built or done, and obligations to contribute to shared items such as a private road. These are recorded and should be read during the legal stage rather than discovered later.

Leasehold: the right to occupy for a term

A leasehold interest is the right to occupy a property for a defined number of years under the terms of a lease. Somebody else owns the building and the land beneath it. Flats are commonly sold this way, because a single structure containing many households needs one party responsible for the roof, the walls, the stairs and the drains.

The lease is the governing document. It sets out what is owned, what is shared, who repairs what, what the leaseholder may and may not do, and how costs are divided.

Ground rent and service charges

A service charge is the leaseholder's share of maintaining the parts of the building that are shared. It varies with what the building actually needs, which means it is not fixed and can rise sharply when major work falls due. Well-run buildings collect towards that work in advance; not all do.

Ground rent, where it exists, is a payment for the land rather than for any service. Its size and how it changes over the life of the lease are set out in the lease itself, and older and newer leases can treat it very differently.

Why lease length matters

A lease is a wasting interest: every year there is one year less of it. Beyond a certain point a shortening lease affects both what lenders will accept and what buyers will pay, and the cost of extending it rises as it shortens. Lease length is therefore a fact about value, not merely a technicality on the title.

Shared structures without a lease

Other arrangements exist for shared buildings, including forms in which the occupiers jointly own the structure and manage it between them. They solve the same problem — somebody has to be responsible for the roof — with a different distribution of control and obligation. The question to ask of any of them is the same: who decides, who pays, and how is a dispute resolved.