Understanding how freehold property works in the UK

Home $ How to buy a property $ A guide on the Law and property act 1925 $ Understanding how freehold property works in the UK

Freehold property are those sold with the right to the land. However, it is not as simple as this and there is a lot more that goes into the topic including adverse possessions. First of all, you must understand there is a special definition for a freehold.

Not only this but there are also things you have to look out for such as the pros and cons of property so you can attempt to make the correct decision when it comes to property ownership.

Making the wrong decision here could set you back financially or lead you to paying off a mortgage in a property you aren’t completely happy with.

a single freehold house

What is the difference between leasehold and freehold?

The term freehold property ownership refers to the ownership of both the land and the building on it for an indefinite period of time. 

Freehold property ownership, unlike leasehold arrangements, does not require a buyer to keep track of lease expirations or paying ground rent or other charges to a landlord. You are your own landlord as the owner of the freehold property.

On top of this, you have the authority to make any changes and repairs you deem necessary without seeking approval from a separate landlord or property manager.

This level of ownership gives property owners more flexibility and independence, as they can make their own decisions about the upkeep and renovation of their property.

On the other hand, leasehold property ownership is a type of property ownership in which you own the building but rent the land on which it sits. 

The freeholder is the owner of the land, and you will have a contract with them outlining the terms of your ownership, which may include restrictions like no subletting or pets in the building.

Leasehold compared to freehold ownership, is limited in time, and the lease will eventually expire, though it may be possible to extend it. If not, this will result in a freehold reversion.

While the landlord is responsible for the common areas of the building, such as hallways and elevators, you will most likely be required to pay ground rent, annual service charges, and maintenance fees to the landlord as a leaseholder.

This type of property ownership has advantages for those who do not want to be responsible for the upkeep and maintenance of the land, but it also has constraints and financial obligations that should be carefully considered before entering into a leasehold agreement.

What are the pros of buying a freehold property?

When you consider if it is worth buying a freehold home. There are a lot of benefits. There are no ground rents or service fees to worry about and there are generally no rules to abide by once you purchase a freehold.

One of the most appealing aspects of freehold property is that you have complete control over your land and all of the decisions that come with it. 

In contrast to some leasehold properties, there are no restrictions on building work or even the ownership of pets. With a freehold, It’s just complete freedom and you can do as you please.

Leasehold properties may have some restrictions such as building rules or pet ownership restrictions which make them less attractive to those who want to have the freedom to do what they want.

Furthermore, with leasehold, you are on a time limit until the lease expires, and other people are involved in your ownership. With freehold, however, it is just you and your property and you get to do your own thing.

What is the definition of a freehold?

So what is the actual definition of a freehold property? It is quite straightforward. You own a freehold property outright, including the land on which it is built.

When purchasing a freehold property, keep in mind that you are responsible for both the property and the land so it is critical to budget for these expenses.

It should be noted that the majority of houses are freehold, but there are some exceptions. Some shared-ownership schemes, for example, may have leasehold properties. 

However, freehold properties are the norm and provide you with a lot of control and freedom as a homeowner.

Are there any alternatives to freehold property?

Now we have gone over the terms of leasehold and freehold and you’re aware of what freehold is all about. It may be a good time to consider if there are any alternatives.

The truth is, aside from a leasehold property, there are not alternatives as all buildings are bought on a freehold or leasehold basis.

Having said this, there are also different schemes a property can be bought with such as help to buy schemes, shared ownership schemes (found here)and even using government backed equity loans for new builds.

row of buildings that are freehold

What is meant by a flying freehold?

The term flying freehold is often seen as a confusing term. It occurs when you own a property, but a portion of it is located above land that you do not own. 

For instance, a balcony that extends over someone else’s property, or a portion of the property that extends over a shared archway or entrance. In other words, you own the space but not what lies beneath it.

You shouldn’t worry though as a flying freehold doesn’t have to be this difficult to define all of the time, you must just notify your conveyancing solicitor. And if you have a flying freehold and want to for a commonhold, you should probably rectify the flying freehold before proceeding.

This is especially true if you need to gain access to your neighbour’s property or if there are any restrictions on building or fixing that space. It’s always better to be prepared.

The good news is that most mortgage lenders will accept flying freehold as part of a larger purchase. So, if you’re thinking about purchasing a property with a flying freehold, make sure to discuss it with your conveyancing solicitor first to avoid any surprises later on.

What is meant by a share of a freehold?

Did you know that some properties, particularly flats, can be purchased with a portion of the freehold? This means that, in addition to the leasehold, you own a portion of the freehold for the entire building.

This is what is known as a share of a freehold and is where a portion of the house is a freehold and the rest is a leasehold in this way.

Having a share of the freehold allows you to have more control over your property and the costs of service charges. However, there are some drawbacks to consider. For example, getting building insurance may require more administration for building management.

So, if you’re thinking about buying a property with a share of freehold, weigh the pros and cons carefully. It all comes down to your individual requirements and preferences you have for the home you’re buying.

A share of freehold example explained

In some cases, flat owners may decide to band together and form a corporation to manage the building. Each owner of a flat in the building would have a certain number of shares in that company. 

This gives flat owners a say in how the building is managed and how the budget is spent and is another way of forming a shared freehold.

Having a share of the freehold allows you to have more control over the property and the building as a whole and have a say in how your building is managed. 

Just keep in mind that owning a share of freehold means taking on more responsibility, so carefully weigh the pros and cons.

How to buy a freehold

If you are a leaseholder and thinking that it is too late to own a property, this is not the case as you can always buy the freehold of a property if the landlord or landlord allows you to.

Before doing so, there are a few things to consider if you are a leaseholder interested in purchasing the freehold of your property. Let’s dive into the topic.

What is the cost of buying a freehold property?

First and foremost, you must consider the cost. Purchasing the freehold on your property will cost you money, so keep that in mind. You must also consider legal and valuation fees, as well as stamp duty.

Depending on the deal, a freeholder can charge anywhere from £1,000 to £50,000 or freehold. This all depends on the value of the land, property and the time left on the leasehold.

A freehold house

What are tenant’s rights when buying a freehold?

Also, a landlord may want to sell the freehold of a block of flats in some cases. If this occurs, they will usually have to give the leaseholders the option to buy it first. This is referred to as the right of first refusal.

If you don’t want to buy the freehold outright, you might want to apply for the right to manage your building.

This gives you more control over how the building is managed and the costs associated with it. It also gives you a great opportunity to understand the laws surrounding freeholds like section 146 notices as part of the property act.

How does the right to manage a property work?

Overall, purchasing the freehold or applying for the right to manage can be an excellent way to gain control of your property and the building. Just be sure to gather as much information you can and make a well thought out decision.

Is it possible to get a mortgage on a freehold?

Absolutely, a freehold property is not that hard to find a mortgage for in comparison to a leasehold.

How do freeholds work in Scotland?

Most property is classed as freehold in Scotland. This is due to there being very few leasehold properties and the buying process in Scotland seen here being a bit different to how it is in the rest of the UK.

How freeholding works in Scotland is through a process of exchanging missives. Buyers and sellers must exchange missives to negotiate the contract’s terms. 

This includes deciding on things like the date of entry and any extras that the buyer wants to include in the sale, such as light fixtures. The seller’s solicitor must then send the buyer’s solicitor the property title deeds and the land register search. 

This demonstrates that there are no legal issues that could prevent the sale from proceeding. When all of the terms are agreed upon, the contracts are signed, and the buyer’s solicitor will request that the purchase funds be transferred to their bank account. 

If applicable, they will also request mortgage funds from the mortgage lender. The buyer’s solicitor will pay the purchase price to the seller’s solicitor on the agreed upon date of entry. 

The seller will then provide the paperwork required to transfer ownership from the seller to the buyer’s solicitor. The transaction is considered settled if everything is in order.

The buyer can then pick up the keys from the seller, their solicitor, or their estate agent and begin the process of settling into their new home. 

Finally, the buyer’s solicitor will notify the land registers that their client has acquired ownership of the property and pay any Land and Buildings Transaction Tax that the buyer is required to pay to the government. 

A street with freehold property in the UK

Wrapping things up

In this article, the implications of freehold properties are explained. While it sounds good to own property outright and have complete freedom over a property, there are instances where this isn’t right for everyone. 

Shared ownership schemes may also be part of leasehold properties which is talked about too, but the norm is for houses to be freehold.

In addition, flying freeholds are discussed which is where there is an overhanging building that is intruding on another freehold.

All these terms show how complicated the topic is so it’s important to pay attention to all the details and plan accordingly when involving yourself in freehold deals. Being familiar with all of the necessary terms in a property like leasehold, freehold and commonholds will only serve you well. 

FAQ

How do you assess the value of a freehold?

The value of a freehold property is typically assessed by a professional appraiser who considers factors like location, property size, condition, and recent sales of similar properties in the area

What is an example of a freehold property?

An example of a freehold property is a house or flat where the owner has full ownership rights, including the land it’s built on, and there’s no lease or rent to another party

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donnell-bailey

Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.

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