In the United Kingdom, most properties are sold either on a freehold or on a leasehold basis. The difference of the two mainly lie on the ownership of the main property. Some people still have trouble deciding which type of ownership they should go for. In this piece, we’re going to tackle the rights and responsibilities of each party to ensure a harmonious relationship with each other, as well as to highlight the similarities and differences between the two.

The Difference Between Freehold and Leasehold Properties

Freehold Property

A freehold property is a plot of land and any or all properties that sit on it. As a freeholder, you may opt to divide the property into manageable flats or apartments which could be rented out to lessors.

Advantages:

• The buyer is the real owner.
• The rights, title, interest, and ownership transfers to the buyer.
• Buyer can transfer the property absolutely either via a gift, a will, a sale, or any other transferring method.
• Real estate market rewards freehold properties with a higher premium than leasehold properties.

Disadvantage:

• Owner is fully-responsible for repairs, maintenance, and upkeep.

Leasehold Property

These properties are purpose-built blocks, which may either be residential or commercial/retail in nature. Ownership of a leasehold means to take care of everything within the floor space and air space of the flat (which includes floorboards, and walls and/or ceiling plaster). However, it usually does not include the external or structural walls. These are parts of the freehold itself, and whose responsibilities lie with the landowner.

Advantages:

• Has long tenancy, usually between 99 to 125 years.
• Terms are fixed at the beginning, and decreases in length year by year.
• The title check is easy to investigate and verify, since the title is assigned to a relevant land-owning government agency.

Disadvantages:

•  Absolute ownership rests with lessors.
•  Buyer is the lessee.
• Annual lease charges need to be paid.
• Incidence of unearned increase is applicable.
•  Each landowning agency/private individual has its own set of rules.
• A “No Objection Certificate” from the landowning agency/private individual is required for initiating property transfer.
• Lease has defined period, and eventually expires.
• Lessor may deny renewal or justify and ask for higher rent prices.

Responsibilities

In the United Kingdom, real estate laws are governed in part by the Landlord & Tenant Act of 1985 and Landlord & Tenant Act of 1987. These two laws underscore the basic rules for the relationship between freeholders and their leaseholders.

Freeholders’ responsibilities

• Repairs and maintenance to the structure of the building (including the roof and guttering) and any communal areas
• The cleaning of the outer building
• Upkeep, repair, and maintenance of the communal areas such as lifts and stairways
• Applying ground rent / service charges
• Prepare and send reports to all leaseholders, detailing management accounts to show how the money has been spent
• Building insurance to protect the entire property from accidents and/or disasters (natural or manmade) such as fires or floods

Leaseholders’ responsibilities

• Repairs and maintenance for the area which they are responsible for. These would include, but are not limited to, internal plumbing, wiring, plasterwork and floorboards, paintwork, and decorations. Usually, this is done through monthly, quarterly, or annual service charges made directly to the landowner.
• Repairs of damages brought about by accidents, manmade or otherwise, which are not covered by the building’s insurance
•  Maintenance of furniture and appliances, owned or otherwise.

Rights

Freeholders’ Rights

• Right to Charge Services Made: Landowners may include repair and maintenance costs through the service charge, as long as they have consulted the leaseholders about the maintenance to be done and they have agreed to the costs
• Right to Enter Properties/Repair: Freeholders can continue to enter and arrange for the repair and maintenance work to be done for the property, even if a leaseholder refuses to pay for them
• Right to Settlement: If the leaseholder won’t follow through with maintenance settlements, the landowners may take them to court. However, unfortunately for the freeholder, s/he cannot hold this against the other leaseholders as a loophole not to make the repairs for the property

Leaseholders’ Rights

• Right to Peaceful Occupation: For the duration of the lease, the tenants should be able to enjoy their stay in the flat worry-free
• Right to Consultation: Should the landlord be having major construction work to be done on the property, the leaseholders should be met with and consulted first. Failure to do so may result in the landowner not being able to legally recover costs. Also, landowners may not enter into certain agreements for any service or product that will lend cost to the leaseholders without consulting the latter first.
• Right to Manage: Leaseholders may band together and petition to change the management of their property if they are not satisfied with it. However, if it is found that there is no fault in the management of the property, but the tenants would still like to pursue the change, then they would not be compensated for any damage. This rule may not be applied to properties wherein the owner is a local authority.