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Leasehold and Freehold - Knowing the Difference in Residential Flats
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The owner of a freehold property owns all of the property and all of the land outright. The theory states that the freeholder in England and Wales owns the land and everything on it from the centre of the earth to the top of the sky. Most houses in the UK are freehold with some notable if rare leasehold house exceptions.
The form of land ownership dates back to feudal times and many non-British people new to buying flats in the England and Wales are taken aback when they learn of it. Most Europeans are used to the concept of very long rental leases on flats where the block and units are owned outright by one person or company. In Australia a system know as 'strata' and in the US the condominium system establish forms of shared apartment ownership with committees of owners responsible for running the whole building and its shared parts. England and Wales are still stuck in the much criticised but historically entrenched leasehold tenure system where a separate landlord has an ultimate call on the main building still and who collects ground rents from all the lessees or leaseholders.
A leasehold property is 'owned' for a period of time by the lessee as stipulated on a lease document. At the end of this lease period, the property reverts to the freehold. Since most leases are 99 or 125 years, few of us need to worry about reaching this point, known as 'reversion'. It is a bit like taking out a lease on a car; you pay for the right to drive it and are fully responsible for it but, after the lease period, the finance company gets the car back. However, older flats have leases that may have run down several dozen years.
When acquiring shares of freehold, flat owners are buying the freehold for their part of the block from the current freeholder. The flat owner or lessee continues to be a party to the existing lease agreement. However, they almost become their own freeholder, bizarre as that may seem.
It is common for uninitiated people to refer to a flat as 'freehold', especially in some estate agents' particulars when marketing a property. It is almost certainly not freehold but leasehold with a share of freehold.
There is an important exception to residential leasehold in the form of Commonhold tenure. This is a concept introduced in the 2002 Commonhold and Leasehold Reform Act to answer those critics who demanded an alternative to leasehold tenure. It is theoretically possible to convert flats to Commonhold from leasehold but the requirement that all the leaseholders must approve of the change makes it extremely rare for blocks to successfully undertake the process.
Commonhold is essentially freehold ownership of individual flats, houses and non-residential units within a building or an estate. The remainder of the building or estate forming the Commonhold is owned and managed jointly by the owners of the flats via a Commonhold Association. The most significant difference is that ownership is not limited to a number of years as in the case of leasehold ownership.
The form of land ownership dates back to feudal times and many non-British people new to buying flats in the England and Wales are taken aback when they learn of it. Most Europeans are used to the concept of very long rental leases on flats where the block and units are owned outright by one person or company. In Australia a system know as 'strata' and in the US the condominium system establish forms of shared apartment ownership with committees of owners responsible for running the whole building and its shared parts. England and Wales are still stuck in the much criticised but historically entrenched leasehold tenure system where a separate landlord has an ultimate call on the main building still and who collects ground rents from all the lessees or leaseholders.
A leasehold property is 'owned' for a period of time by the lessee as stipulated on a lease document. At the end of this lease period, the property reverts to the freehold. Since most leases are 99 or 125 years, few of us need to worry about reaching this point, known as 'reversion'. It is a bit like taking out a lease on a car; you pay for the right to drive it and are fully responsible for it but, after the lease period, the finance company gets the car back. However, older flats have leases that may have run down several dozen years.
When acquiring shares of freehold, flat owners are buying the freehold for their part of the block from the current freeholder. The flat owner or lessee continues to be a party to the existing lease agreement. However, they almost become their own freeholder, bizarre as that may seem.
It is common for uninitiated people to refer to a flat as 'freehold', especially in some estate agents' particulars when marketing a property. It is almost certainly not freehold but leasehold with a share of freehold.
There is an important exception to residential leasehold in the form of Commonhold tenure. This is a concept introduced in the 2002 Commonhold and Leasehold Reform Act to answer those critics who demanded an alternative to leasehold tenure. It is theoretically possible to convert flats to Commonhold from leasehold but the requirement that all the leaseholders must approve of the change makes it extremely rare for blocks to successfully undertake the process.
Commonhold is essentially freehold ownership of individual flats, houses and non-residential units within a building or an estate. The remainder of the building or estate forming the Commonhold is owned and managed jointly by the owners of the flats via a Commonhold Association. The most significant difference is that ownership is not limited to a number of years as in the case of leasehold ownership.
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