Freehold or Leasehold? Well, when buying a property in the UK these are the two main types of ownership and, when boiled down, they mean the following…
Freehold: The person who owns the freehold of a property owns both the property and the land it stands on.
Leasehold: A leaseholder does not own the land the property is built on and essentially rents the property from the freeholder for a number of years, decades or, in some instances, centuries.
Apartments are generally sold as leasehold properties because of the very nature that, if you have a neighbour above and/or below you, both of you can’t own the land – with the length of the lease usually being over 100 years (sometimes far more).
However, some apartments – particularly Victorian and Edwardian houses converted into numerous apartments – are sold on the basis that the leasehold apartment owner also owns part of the freehold (with other leaseholders in the same building), having what is known as ‘share of freehold’. Similarly, the Government also brought in legislation a number of years ago for more modern apartment blocks built in the 20th century where it allowed leaseholders to club together and have the right to purchase the freehold together.
Now we must stress, there is nothing wrong with leasehold – it’s been a useful form of property ownership since Norman times, it’s just that with a leasehold comes potential extra responsibility. If there are four apartments in a block, who pays for the leaking roof when all benefit from it being watertight? Who pays for any subsidence, when all benefit from good foundations? Who pays for building insurances? .. the list goes on – so clauses are added to the leasehold agreement to ensure everyone is protected and pays their fair share of the joint costs of the building with service charges and a nominal ground rent (ground rent is a nominal rent, commonly quite low, often in the region of £50 per year to the freeholder of the property).
Whilst houses tend to be sold as freehold as it’s a more unambiguous set-up, given there is only one property on the land. Contentiously however, in the last 20 to 25 years this has not always been the case with new-builds as some new homes’ builders have sold the leasehold to the buyer and retained the freehold. There is nothing wrong with that, it’s just in some cases (not all) they also added some onerous clauses to the lease of the property they were selling, which could well be the basis of another ‘PPI-style’ scandal.
Builders started to add clauses into leasehold property sales with ground rent being set at an initial £300 to £400 a year but doubling every ten years. Though unwary first-time buyers were habitually told that their 500 and 999-year leases were practically freehold, the clauses inescapably meant that the ground rent would rise to ridiculous levels meaning the average ground rent would be £23,750 a year by 2070 and £379,900 a year by 2130, making the properties practically unsellable today, with owners often left unable to re-mortgage too.
Government reports have emerged recently that suggest 12,000 leaseholders in the UK are facing such ground rents – which are paid to the freeholder – that double in cost, usually every 10 years, but occasionally even more frequently.
So, how many people are affected by this in our local area?
Well, using Government data, our research suggests that in Ashford 66 householders have bought a detached house, semi-detached house or town house – all of which would ordinarily be freehold – as leasehold. Not all these have onerous lease clauses, but some do. I know it doesn’t sound a lot, yet that is potentially 66 lives ruined with homes they can’t sell or possibly even refinance – making them prisoners in their own property.
The good news is the Government is on the case and appear serious about sorting this issue out – they have already proposed a ban on the future sale of houses as leasehold, as well as cutting ground rents to zero. Yet serious questions remain about the future of homeowners in existing leasehold. Westminster wants the developers to set up compensation plans and many (though far from all) have stepped up to the mark and started to sort this, however some campaigners have said these schemes are not fit for purpose, let’s hope they are wrong…