12 October 2017

Who owns your freehold?

Home ownership in the UK comes in two distinct forms: leasehold and freehold. And it's leasehold ownership that has been in the news a lot lately, with homeowners sometimes facing unfair terms.

So what's the difference? With a freehold, you own the land on which the property is built, while with a leasehold you only own the property itself and for a fixed term. With a leasehold, there may be a host of other costs to account for, such as ground rent to the freeholder (also known as the landlord) or towards maintenance bills for the property.

Generally, leasehold has been the ownership structure when you buy a flat, apartment or maisonette, in England, Wales and Northern Ireland, with most houses sold on a freehold basis.

The growth of leasehold houses

However, in recent years developers have increasingly been building and then selling houses on a leasehold basis, exposing homeowners to additional costs they wouldn't normally need to worry about with a house.

What's more, these leasehold agreements can include punitive terms which might have been overlooked by the buyer when they bought the house, such as a doubling of the ground rent every 10 years.

In a number of cases, developers have sold the freeholds for these properties without informing the homeowner. If a landlord wants to sell the freehold of a block of flats for example, they are legally required to give the leaseholders the opportunity to buy it. However, that law doesn't apply to leasehold houses.

Ending exploitation

Nationwide was the first lender to call foul on these tactics, announcing in May 2017 a series of policies to protect borrowers from unfair leasehold practices.

These include only lending against new build leasehold properties with a maximum starting ground rent of 0.1% of the property's value, and disqualifying properties with unreasonable ground rent increases.

The government has now taken up the issue too, announcing plans to crack down on leasehold exploitation, including potentially banning new-build houses from being sold on a leasehold basis. Sajid Javid, the Communities Secretary, said that developers were “exploiting" home buyers with these shady tactics, which must now come to an end.

The government is now consulting on the plans, so it will be a while before anything concrete is in place.

However, the developer Countrywide has begun buying back freeholds on some leasehold houses and eliminating punishing ground rent clauses, in a sign that there is real momentum behind those looking to clean up this part of the housing market.

Who owns your freehold?

If you are unclear about exactly who owns the freehold of your property, then the easiest thing to do is head over to the Land Registry website.

You just need to enter the door number and postcode of a property; it then costs £3 to purchase the title plan for the property.

Buying the freehold

Leaseholders are able to come together to attempt to purchase the freehold, so long as they meet certain criteria, through a process called collective enfranchisement.

You'll need to have at least 50% of the building's flat owners take part, and all have a lease of longer than 21 years. From there, you'll need to appoint solicitors, get a valuation of what the freehold is likely to cost, and issue an Initial Notice, which sets out your terms for purchasing the freehold. The landlord can try to push back, and the process can take some time.

If you're thinking about purchasing the freehold for your leasehold property, it's definitely worth taking a look at the  (This link will open in a new window)Lease Advisory Service website, which includes comprehensive guides on how to pursue a purchase.

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About the author

John Fitzsimons

John Fitzsimons is an award-winning financial journalist who has written for publications including the Sunday Times, The Mirror, Forbes, Moneywise and loveMONEY.

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