What is the difference between a freehold and a leasehold property?

Property is usually either freehold or leasehold. It is important to know which you are buying, and to understand the implications, particularly if you will be taking on a leasehold home.

Houses are often, but not always, freehold. Flats are generally leasehold, and the lease will include obligations and requirements that you will need to abide by.

What is freehold?

If you own a freehold property, the land and building belong to you outright, subject to any third-party interests, such as a mortgage.

What is leasehold?

With a leasehold property, the freeholder or landlord owns the land and building, while the leaseholder has the right to occupy them for the period of the lease. This is often between 99 and 999 years.

The lease will include a wide range of terms and conditions that both the freeholder and the leaseholder must obey.

Terms commonly included in a residential lease

The lease will state how long it runs for, and will usually require the tenant to pay ground rent, although the ground rent should be negligible in leases dated after 30 June 2022.

The freeholder will be required to keep the exterior of the property in good repair, including the roof and any communal areas. They must also put buildings insurance in place.

The leaseholder will be required to keep the internal part of the property in good condition, and will need permission to make any alterations. They will need to pay a service charge to the freeholder. If they wish to sublet the property, they may need the freeholder’s consent. The lease can also include restrictive covenants, for example, no noise after 9pm, no pets, and carpets to be put down on the floors of upper flats.

What does the service charge cover?

The service charge levied by the freeholder covers the cost of repairs, maintenance, utilities to the common area, cleaners or gardeners, if these are used in the common areas, buildings insurance, management costs, and a contribution to a sinking fund, which is a pot of money put aside to cover any future large items of expenditure such as structural repairs or a new roof.

Buying a leasehold property

If you are buying a leasehold property, your solicitor will make a large number of enquiries relating to the freeholder and the management of the property. The freeholder may deal with everything themselves or, alternatively, they may have a managing agent who handles matters.

They will be required to provide the following information:

• A copy of the buildings insurance schedule
• Accounts for the previous three years
• Details of any major planned works
• Details of any disputes
• Details of any service charge or ground rent arrears of any flat owners
• Details of how much is held in the sinking fund
• Permission for any alterations that have been made to the flat

What is a flat management company?

In some instances, the management of the property may be dealt with by a flat management company comprised of some of the flat owners. The flat management company may also own the freehold of the building or, in some cases, it may deal solely with the management, with the freehold owned by the freeholder.

If you buy a flat from a director of a flat management company, you will generally be registered as a director once your purchase has been completed.

The flat management company will be responsible for dealing with all aspects of the management, including arranging insurance, repairs and maintenance, collecting service charges, and preparing annual accounts.

If your flat is not currently run by a management company, it may be possible to take over the right to manage from the landlord if enough flat owners wish to participate. This can be beneficial, particularly if a landlord is not running matters well. The company members will be able to obtain quotes for work, choose the best insurer, and decide when to have work done. Potential drawbacks include that flat management can be a lot of work, and if there are service charge arrears, they will need to be collected.

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