Freehold and Leasehold explained, and the obligations of the Freeholder and Leaseholder
Across the UK, 30% of all properties sold are leasehold, so it’s worth understanding the differences between freehold and leasehold.
What is Freehold?
A freeholder owns the freehold of a property, which includes the land, the buildings on that land and the airspace above it where “interference in that airspace would affect the freeholder’s reasonable enjoyment of the land and structures upon it”.
Land in this sense relates to the earth marked out in the land registry, the soil, rocks and minerals that form part of that earth; flowers, trees and animals that are found on that earth. For the record, any gold, silver, petroleum, mineral oil or natural gas is owned by the Crown, and any coal is owned by the Coal Authority. The freeholder also owns rights to the land, such as the right to fish.
Buildings are fairly straightforward where the freeholder owns outright all of the buildings, part built, derelict or otherwise.
Airspace is the air above the land that protects the reasonable enjoyment of the land and buildings, known as the lower stratum. The upper stratum is simply the air above this where the freeholder has no more rights than the general public.
What is Leasehold?
The freeholder of a property grants a leasehold to a leaseholder. The terms of the leasehold are explained in a document called the lease, which is the binding contract between the freeholder and the leaseholder.
Lets take the example of a large house to be converted into two flats. The owner of this house creates two leasehold properties by converting the house into two flats and creating a 100 year lease for each flat. Without the lease, when a flat is sold the freeholder would lose possession of that part of the building, and by extension the rights to what can be done with it. This problem is fixed by “Leasehold” where the land, common parts of buildings, and airspace are owned by a single entity “the freeholder” and the individual dwellings therein are owned, under lease, by the leaseholder.
A lease is a long term tenancy granted by the freeholder and is typically granted for 100-999 years. It is unusual for a lease to expire and the leaseholder to be evicted, as a leaseholder would have plenty of time to arrange a lease extension. If the lease did expire, then the property would revert back to the control of the freeholder.
The Lease
The lease is a contract between the freeholder (also called the Lessor) and the leaseholder (the Lessee). The lease sets out certain rights of ownership, outlines exactly what the boundary of the property is, the services it is entitled to and what is outside the property boundary.
The lease sets out the obligations that the freeholder and leaseholder must abide by, and the failure to do this is known as a breach of the lease and can become a court matter or even forfeiture of the property. So you should look for and read the obligations section of your lease. At the time of purchase, it’s a good idea to look at the important elements of the lease with your solicitor, who can explain any legal terms.
There are a range of Freeholder obligations in the Lease, for example:
- To allow the leaseholder to peaceably enjoy the demised premises without interruption
- To not create different lease conditions for the different flats in the block
- To perform and observe the covenants set out in the lease
- To insure the building(s) up to the value of full replacement
- To maintain the premises in good order, including roads, vegetation and walls
- To redecorate the communal internal and external parts at least every five years
- To keep the communal areas sufficiently lit, clean and ensure any apparatus or appliance is in good condition
- To maintain the gardens in good order and keep paths free from weeds
- To employ staff/contractors that are reasonably required to ensure the obligations are met
There are a range of Leaseholder obligations in the Lease, for example:
- To pay rent (ground rent)
- To pay all taxes relating to the demised property (council tax etc.)
- To fulfil all statutory works in the demised premises under law & keep the freeholder fully indemnified (fire regulations, electrical testing etc.)
- To keep the demised property in good condition and repair
- To not obstruct the driveway or paths for others use
- To make good any damage the leaseholder causes at the leaseholder’s expense to the freeholder’s satisfaction
- To allow any workmen to enter the demised premises, given reasonable prior notice
- To not make any structural alternation to the property (walls, doors, windows, beams etc.)
- To occupy the residence as a single family owner, and not permit holiday letting
- To not keep petrol or flammable material in the demised premises
- To not permit any waste spoil or destruction in the demised premises or any act that creates a nuisance to other occupiers or occupiers of adjoining buildings
- To permit the freeholder and his workmen access to the demised premises to examine the state and condition, given reasonable prior notice
- To remedy any decay, defect or wants of repair arising from an examination at the leaseholders expense within a given time frame. Failure to do this permits the freeholder to enter and make these repairs at the leaseholders expense plus 4% above national base interest rate
- To pay to the freeholder a sum determined to be the maintenance charge in respect of the demised premises (service charges)
- To deaden the sound of all activity within the property
- To keep the communal parts clear at all times
- To not keep any animal in the property
- To not sub-let the property without ensuring that their obligations under the lease will continue to be fulfilled
Summary
The leaseholder is responsible for maintaining the condition inside their property, and to not cause a mess or nuisance to other leaseholders.
The freeholder is responsible for maintaining the condition of the land, the building and its common parts, and any issues concerning the local community such as appearance, noise and nuisance. The cost to the freeholder for fulfilling it’s responsibilities is usually covered in the service charge payable by each leaseholder.
The lease spells out which costs the freeholder may incur for the upkeep of the building that are payable by the leaseholders through their service charges. The lease may appear a little restrictive and in favour of the freeholder but in practice the lease ensures that the appearance and value of a building is maintained.
Find out about PMMS block management services for freeholders and residents management companies.