Types of ownership
- Freehold homes – owners own the land beneath the building, normally free from all charges or fees. Apartments own the land through a commonhold association.
- Beware there are a few homes built after 2006 that have a “Deed of Covenant” agreement with terms / conditions committing the buyer to estate maintenance charges. Dubbed Fleecehold; especially if the freeholder has to pay fees for other community property or permission fees. Understanding these fees is important as you often don’t have any control but are still contractually obligated.
Freehold within a Commonhold Association - that us!
- A commonhold is an association that owns the Freehold of the development, it’s members are the apartment owners. This importantly enables each owners to have full ownership of their apartment, and a share in the common areas with full control of the costs, overheads and if required any sub-contracted management.
- Freehold ownership lasts forever. A lease, on the other hand, will expire at some point in the future.
- Commonholds have standard rules and regulations which should make conveyancing simpler and cheaper. It should also be easier for homeowners to understand their rights and obligations. More:-
- Leasehold, is derived from William the Conqueror days. The nobility were given vast swathes of land for providing men for the army’s. Those lands have subsequently been handed down generations and anyone living or working the land has to pay the landowner an annual ground rent for the privilege, the agreement became known as the lease. This is how the Duke of Devonshire, Duke of Cornwall and many others still earn some of their money today.
- These leasehold homes and the lease agreement, which lays out the terms and costs, refers to the leaseholder as the “Tenant”. It is in a long term tenancy agreement. Many leaseholds were for 999 years and at a small or peppercorn rent. This historically enabled the middle gentry and peasants to have homes, to build, to trade, all whilst the Freeholder still retained the land and was “Lord of the Manor as far as you can see”.
All other lands were retained by the Crown until such times as they were sold, by the plot, with their own freehold title, normally free from encumbrances.
Leasehold properties are still property with long term tenancy agreements.
Leasehold is also used used widely for apartments within a building. Most apartments are currently leasehold. A freeholder owns the land and retains the principle interest in the building. Leaseholders buy the right to live in specific apartments for a period of time, modern leases however have a lot of onerous clauses. At the end of the period of lease the land and property is handed back to the freeholder or additional payment for a lease extension is negotiated prior to the termination date.
Leasehold with Share
Less common where the freehold in the land is jointly owned by all the apartment owners, legally attached to each apartment. Freehold shares are legally attached to each apartment. This is known as Leasehold with a share of the Freehold. There are many of variations, each needing careful analysis.
- Leaseholders have meetings and by majority agree their own policy, zero or peppercorn ground rent, management, annual maintenance costs e.g. cleaning, decorating, gardening. There also should be a reserve savings bank accounts for long term structural maintenance etc.
This is as near to commonhold as a leaseholder can get, commonhold allows each apartment to be registered freehold. Subject to majority criteria, leaseholders with shares are able to convert the freehold land to a prescribed commonhold association which also enables their apartments to become freehold.
Leasehold without Share
The bit they don't tell you about
The freehold in the land is owned by someone else, either a person or commonly an investment fund who have an interest in making as much profit out of the leaseholders as they can and often do. Guide from HM Government
- Leaseholders (tenants) therefore have to abide by the freeholders policy, pay all ground rent as stated in the lease, pay any administration and management fees, annual maintenance costs on demand e.g. cleaning, decorating, gardening. There will normally also be a requirement to add to a reserve savings bank accounts for long term structural maintenance etc.
- Value depend on the building, size, location, condition but careful consideration should be given to the length of lease, cost living there, i.e the ground rent, management fees, and value of savings.
- There are many different leases, contracts of tenancy, its important understanding how these can add to annual costs.
- Beware: If you are in breach of the agreement e.g. with-hold ground rent or maintenance fees, even if your reason is fair, the freeholder can apply to the courts for eviction. If ground rent is more than £250 per year or £500 in London you are an assured tenant and the courts are unable to do other than evict as this is the law. You can lose everything!
Beware less than 100 years
Many buyers think they won’t be alive, they will have long sold and received their monies back – in principle however more and more building societies will not lend on leases which have doubling rental clauses or as they get less than 100 years left. To building societies these leases are a poor security with reducing value. Leased properties unable to be mortgaged are difficult to sell and fetch a lot less money as they are reliant on cash buyers.