Guest Blog: How to Find Out if Your Property is Freehold or Leasehold
July 2016 saw important new legislation introduced that affected many freehold owners who were unaware that their property may have been converted into leasehold.
The issue of whether a property is freehold or leasehold can have significant implications for the owner, most notably with regards to purchasing the freehold or extending a lease. It is important that you know which type of ownership your property has so that you are aware of any consequences it may have on your ability to buy the freehold, sell your property or extend your lease.
How do you find out if your property is freehold or leasehold?
If your property is leasehold, you should’ve been given a lease document from the solicitor that advised your purchase. Your mortgage lender will also have this information handy.
If the above are unsuitable options, you can check the Land Registry website to view the entry for your property and obtain your property title which should tell you whether it is freehold or leasehold.
Similarly, to find out if a property you’re interested in purchasing is freehold or leasehold, check the Land Registry Website. This registry is publicly accessible, and should show you who owns the property, the property’s full address, and whether the property is leasehold or freehold.
When browsing estate agent websites or sites such as Rightmove, the majority of the time the description of each property will let you know whether it is a leasehold or freehold, and will often tell you how long is left of the leasehold.
What is a leasehold property?
Leasehold property is not too dissimilar to renting a house or flat. You will have exclusive use of that part of the building for the duration of your lease, but you will only own the physical structure for a limited period of time (usually between 99 and 125 years). At the end of your lease, you will have no rights to remain in occupation and the property will revert back to the freeholder.
The term ‘leasehold’ can be a bit misleading as it suggests that an owner has a right to hold onto their property for a short period of time before it is returned to its rightful owner (completely untrue). The value of a property with a long lease is often lower than an equivalent freehold property due to this reversionary clause.
Understanding your lease
There are two types of leases, one that is ‘for lives’ and another that is for a fixed period of time (less than 60 years). A lease that is for lives will be in the name of multiple individuals, usually two or more. The number of people sharing gives an indication as to how long the lease will last before the property reverts to its freeholder. There are three types of ‘for lives’ leases:
- Joint tenants – these are leases held by multiple individuals. If any of the tenants die during the term of the lease, their share will pass to the remaining tenant(s) automatically. The property will revert back to the freeholder upon the death of all joint tenants.
- Tenants in common – with this type of leasehold you own an undivided interest along with other tenants. You will have a share of the property and the freeholder, rather than another tenant, owns a share of it too. This can cause complications when it comes to buying out other co-owners, so great care should be taken to ensure you do not invest in this type of leasehold.
- Tenants in severalty – these are leases held by only one person, so if the sole tenant dies during the term of the lease it will revert back to the freeholder.
If your property is leasehold and you do not own any part of it, this means that your entire interest belongs to the freeholder. This may be an issue when trying to sell your property or you may find yourself at the mercy of the freeholder when it comes to negotiating an extension.
The length of your lease is also important as it can affect a number of issues relating to the property, such as how long a manager has control over the property and whether or not he/she will be able to sell off any parts that are beyond repair.
In addition, it’s important to check whether the property has a ground rent or not. If it doesn’t, you will likely have to pay an annual service charge – either via your management company or directly – which is used for communal upkeep of the building.
What is a freehold property?
A freeholder owns the structure of the home, but not the land itself.
If you see your freehold property on the market, the first thing that needs to be done is for legal checks to be performed (for example, can the freeholder sell it?) and then under Section 8 of the Leasehold Reform Housing and Urban Development Act 1993 if there are more than two flats within a building, all the flat owners must agree to this sale.
The most common method of buying a freehold is via collective enfranchisement, where the freeholder lets the leaseholders buy him/her out by banding together and making one purchase rather than one individual purchase per leaseholder. There are three types of collective enfranchisement:
- The Right to Manage – only available in buildings with at least two flats, this gives leaseholders the right to run and maintain their building.
- Single Ownership – this is where one person owns all of the freehold (or part of it). With this type of transaction the ‘new’ freeholder will likely want to buy out any other leaseholders so not all freeholds are available for purchase.
- Part Ownership – this is where leaseholders own parts of the building individually, so if you wanted to buy a part ownership in your building then it would be up to individual landlords whether they sell or not.