Leasehold, freehold and commonhold properties
If you buy the freehold of a property, you own both your home and the ground it stands on. Most flats and some houses are sold leasehold. This means you own your home for the period of the lease, and you have to pay ground rent to the freeholder (or their managing agent). The freeholder is often called the landlord.
The original lease on a property may be as long as 99 years or even 999 years to begin with. But it reduces over time, and may be much less at the time you are buying or selling (see ‘When the lease runs out’ below).
The lease lists the rights and responsibilities of you and the freeholder. Often a lease is a complicated document and you should get your solicitor to explain it.
With leasehold properties, for example, you may have to get the freeholder’s consent before you can extend the property or change the fencing.
You could lose your home or have to pay compensation if you break the terms of the lease, but the freeholder must give you written notice and time to put things right before they can go to court to enforce this. In the same way, a leaseholder can take legal action against a freeholder who breaks the terms of the lease, for example by not maintaining common parts of the property properly (see ‘Management and service charges’ below). The lease may also include a third party who is appointed manager of the premises. This can sometimes be a resident management company, run by the tenants. If the lease includes a third-party manager, they will also be able to take action against you if you break the terms of the lease.
Commonhold is a new alternative to leasehold, under which all the owners of a block of flats, for example, are joint owners of the building, and there is no overall landlord. For more about this, see ‘What is commonhold?’ below.
Management and service charges
If you buy a leasehold flat, your lease will usually spell out the freeholder’s responsibility to keep the structure, outside and common parts of the whole building maintained, insured, and in good repair. If they or their managing agents don’t do this, you may be able to take court action to get compensation or to get repairs done.
As a leaseholder, you will pay a service charge to get repairs done. The lease should say how the service charge is worked out, and how it’s divided between all the leaseholders. The charge may vary from year to year, depending on what is done. You may also have to pay a fixed amount into a reserve or ‘sinking’ fund each year to cover the cost of major repairs, such as replacing the roof. The freeholder must consult the leaseholder before doing major work.
Common service-charge problems include:
- being charged for things that are not listed in the lease;
- a lease that does not say who is responsible for particular repairs;
- service charges that are too high for the work done;
- work that is done badly or not at all; and
- where a freeholder won’t give a breakdown of how the service charge is worked out.
In cases like these, you should try to sort out the problem with the freeholder first. If that doesn’t work, you may need to take legal action to sort out the problem.
You can apply to a leasehold valuation tribunal (LVT) to deal with certain problems. These include cases where:
- you think the service charges are unreasonable;
- you are unhappy with the insurer that the freeholder has chosen for your building; or
- in the case of flats, you want to replace the manager of the block because they aren’t doing their job properly.
You can also apply to an LVT if you think the price that the freeholder wants for a new lease or to buy the freehold is unreasonable. Other problems, such as enforcing the landlord’s obligations under the lease, may mean you have to go to court. The Leasehold Advisory Service can give you more information about your rights as a leaseholder, and put you in touch with your local LVT (see ‘Further help’ for details).
Whatever your problem, don’t withhold service charges or ground rent without first getting advice.
Residents and tenants associations
A residents (or tenants) association is a group representing the leaseholders, which is recognised by the freeholder or the local Rent Assessment Committee. If there isn’t a residents association in your block of flats, you could consider setting one up. This would make it easier to deal with the freeholder, and also to get rights that you wouldn’t have as an individual tenant. You can get advice on setting up a residents association from the Rent Assessment Committee. You’ll find its number in the phone book.
When the lease runs out
If your lease is approaching its end, you should seek advice. That’s because, if it runs out and the freeholder gives you written notice to end it, you will become a ‘tenant at will’ and the freeholder can begin ‘possession proceedings’ (the process of taking the property back and making you leave). For more on your rights as a tenant, see the Community Legal Advice leaflet ‘Renting and Letting’.
You may face problems before a lease runs out. For example, a property with less than about 60 years of the lease left may be hard to sell. The rules are different for houses and flats.
Mortgage lenders also have rules stating the minimum length of lease that must remain on a property for which they will provide a mortgage.
Extending the lease on a house
Most leaseholders have the right to extend their lease. If you have a long leasehold on a house (a lease of 21 years or more), you usually have the right to extend the lease for 50 years. You cannot extend it more than once. (However, you can buy the freehold, even after extending the lease.) You do not have to pay to extend the lease, but you do have to pay any expenses for doing this, such as legal fees.
And you will have to pay a new ground rent under the extended lease, which will be set at current values and will probably be much higher than the one you pay now. The freeholder can refuse to extend the lease only if they want to demolish or rebuild the house, or if they or their family want to live in it. But if they want either of these things, they will have to apply to the court, and you would be able to claim compensation.
Renewing the lease on a flat
If you have the leasehold on a flat, you usually have the right to renew the lease by a further 90 years, as long as you have been a long leaseholder (which means the lease has 21 years or more to run) for at least two years. The freeholder can refuse to renew the leasehold if the property is to be redeveloped. But they will have to apply to the court to do this. You should get legal advice if this happens. You will have to pay for a new lease and the freeholder’s ‘reasonable’ costs, but you won’t have to pay ground rent under the lease.
Buying the freehold
If you are a leaseholder (or you are buying a leasehold property), you may have the right to buy the freehold of your property. This is called ‘enfranchisement’, and it can be a good idea, particularly if the existing freeholder doesn’t maintain the building properly. The rules are different for houses and flats (see below).
Buying the freehold of a house
You normally have the right to buy the freehold of a house if you have held a long lease (21 years or more) for at least the past two years. However, business tenants face different rules, which are not covered here.
You must give the current freeholder written notice that you want to buy. You should also get legal advice.
You will pay the price of the freehold and the landlord’s costs. You may also need to pay a share of what is called the ‘marriage value’ (the increase in value from joining the leasehold and freehold interests).
You may need to apply to a leasehold valuation tribunal or the court if you cannot agree terms. The Leasehold Advisory Service can give you more information on how to do this (see ‘Further help’ for details).
Buying the freehold of a flat
If you own a flat, you and the other leaseholders of the flats in your building may have the right to buy the freehold jointly (also called ‘enfranchisement’). However, the conditions that you must meet to do this are complicated. You have the right to buy the freehold jointly if:
- you have a long lease of 21 years or more; and
- the leaseholders who agree to buy the freehold of the building are leaseholders of at least half the flats in the building (if there are only two flats, both leaseholders must want to buy); and
- at least 75 per cent of the building is for residential use; or
- the freeholder owned the building before its conversion, and converted it into up to four flats, but neither they nor an adult member of their family has lived in any of the flats during the past year.
If other leaseholders buy the freehold of your building but you do not join them in the purchase, your rights and responsibilities as a leaseholder do not change – it’s just that your freeholder will be the group of neighbours who have joined.
You can get more information about buying a freehold from the Leasehold Advisory Service (see ‘Further help’). However, the actual process of valuing and buying a joint freehold is long and complicated. You will need expert help from a valuer and a solicitor. The valuation will be based on the ‘marriage value’ as well as on the open market value.
There are other ways to obtain the freehold of your building. In most cases, a freeholder who wants to sell the freehold of a block of flats must first offer the leaseholders the chance to buy it before offering it to anyone else. Leaseholders may also have the legal right to buy a freehold when the landlord has a poor record of carrying out their role, for example in maintaining the property.
Another option is to convert from leasehold to commonhold, which is a new system of joint ownership. See ‘What is commonhold?’ below for more about this.
What is commonhold?
Commonhold was introduced in September 2004 as a new way of owning property. It is meant to be better than leasehold for some types of property, particularly blocks of flats.
Under commonhold, a block of flats, for example, is owned jointly by all the owners of the flats. Unlike leasehold, there is no overall landlord. The freehold is owned by a company called a commonhold association, and the owner of each flat is a member of this association. The commonhold association is responsible for maintaining the common areas of the building. All the members must sign a statement, called a commonhold agreement, agreeing to keep to certain terms and conditions. The terms are similar to those in a lease; for example, agreeing not to cause a nuisance to other residents.
Commonhold has several advantages over leasehold:
- There is no time limit on it, so you don’t have to worry about how many years are left on the lease.
All the decisions about the building are made jointly by the property owners.
- It avoids the problem of landlords who demand high service charges or do not maintain the building properly.
However, there are potential disadvantages:
- The members of the commonhold association (who are all neighbours in the same building) must enforce the rules in the commonhold agreement, which might cause tension between members.
- Some mortgage lenders won’t accept commonhold property as security for a mortgage.
How can I buy a commonhold property?
Most commonhold developments are likely to be new ones built after September 2004, when commonhold started. Property developers can choose whether a development will be leasehold or commonhold.
There are unlikely to be many commonhold developments to begin with, because developers will want to be sure that there are no problems with the system.
Can I convert my leasehold to commonhold?
You may be able to convert to commonhold, but you and the other property owners in your building will first have to buy the freehold, and every property owner in the building will have to agree to convert to commonhold.
Converting to commonhold can be complicated and expensive. It is probably most suitable for people who live in large blocks of flats where there is also commercial property, such as offices. If you live in a small block, simply buying the freehold may be cheaper and easier.
If you do want to convert to commonhold, you will need help from a solicitor with expertise in this. For more information about commonhold, contact the Leasehold Advisory Service.
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