What Is Freehold Property?3rd Jan 2019
You live in a leasehold flat. You’re thinking of buying the freehold because your lease term is approaching (or has passed) the crucial 80-year mark.
But what exactly is the freehold? What would you be getting for your money?
Basic Principles Of Freehold Property
Buying the freehold means that you own the land under your flat – not just the leasehold right to live in it for a defined number of years. (Read more here about the difference between freehold and leasehold property.)
In theory, your freehold land ownership extends right down to the very core of the Earth (along with some mineral rights)
And it also any airspace reasonably necessary for your ordinary use and enjoyment of the land. In practice this means only 500-1,000 feet of airspace above any building on the land – so you can’t stop airliners from flying over your house.
In practice, there are different types of freehold ownership (based on what sort of property you live in) but they all convey some important benefits:
- you will no longer have to worry about a short lease stopping you from being able to sell your home (provided any leases associated with flats or ‘units’ are extended)
- your flat will no longer have an ‘outside landlord’
- you will no longer have to pay ground rent (provided any leases associated with flats or ‘units’ are varied accordingly).
So far so good. But there are some important things to bear in mind…
Different Types Of Freehold
Buying the freehold on your flat is different from buying a freehold house or bungalow.
With a house or bungalow, you will be the sole occupier so you don’t have to worry about any fellow flat owners.
Yes, there may still be covenants that you have to observe but these are generally few, far between and not too onerous.
These could include rules about architectural details to ensure that your property remains in keeping with neighbouring buildings.
But with a flat, the freehold that you are buying is somewhat different. You and your fellow flat owners are joining forces to buy the freehold in a process commonly called collective enfranchisement (although you can also buy through an open market transaction or acceptance of a right of first refusal offer).
Collective enfranchisement usually means that you are each buying a share in a newly-created company you have set up to own the freehold. If there are 20 flats in your block then you may then own a 1/20th share in the company that owns the freehold.
What does that mean in real terms? Well, as a shareholder in a freehold company associated with your flat you are still the master of all you survey. And you are free from the shackles of your landlord.
But you are still subject to the rules of your old lease because – quite separately – you are still a leaseholder of your flat.
Think about the implications of this because it is important…
You will own a share in the freehold but there is still a lease in place. Usually, it will be a 999-year lease so you no longer need to worry about it expiring and mortgage lenders refusing to loan money against the value of your property because of lease length.
So why is there still a lease in place if you own a share of the freehold? The reasons are simple and sensible:
- regardless of who owns the freehold, your block still has to function as a community of flat owners – which means you all have to abide by the existing lease covenants to ensure that you all continue to live in harmony
- service charges have to be collected under the terms of the lease to ensure that the block’s communal areas and grounds are maintained and the building insurance premiums are paid
- there must be a mechanism (perhaps a sinking fund) in place to cover large exceptional bills such as roof or lift repairs when they become necessary.
Benefits Of Buying The Freehold
In the current climate, you could be forgiven for thinking that buying the freehold sounds a bit like some people’s idea of Brexit…you leave your landlord’s regime only to discover that most of the old rules remain in place!
But there are some potential big benefits when you look at the bigger picture:
- no more ‘outside landlord’
- no more ongoing ground rent payment (provided the leases are varied accordingly)
- you will get to choose your own tradespeople to maintain the property – and fire them if they do a bad job (assuming the management function of the building was conducted by the landlord)
- you maintain your existing individual rights as a leaseholder – such as the right to change your block management company; to dispute service charges; to be consulted about major works.
Our experience has shown some flat owners see the value of their property increase because it now comes with a ‘share of freehold’. This can make buying the freehold a cost-neutral exercise.
But you will need a qualified residential property valuer with leasehold expertise to advise you on the expected value of your property after you have bought the freehold. Although we are solicitors with specialist leasehold expertise and experience, we are not valuers, chartered surveyors or estate agents.
Find Our More About Buying The Freehold
Book a free chat with a solicitor to discover how buying the freehold can benefit you and your fellow leaseholders.