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Freehold or leasehold? Common misconceptions

A fundamental matter when purchasing property, whether commercial or residential, is to determine whether the tenure of the property is freehold or leasehold.

It is imperative that Buyers understand the consequences of this distinction; there are additional matters to consider when acquiring leasehold premises, which should be fully appreciated before a Buyer commits to a sale.

Broadly, a freehold estate affords the proprietor with rights of ownership of the land.

A leasehold estate affords the owner rights of possession and use, but this does not amount to the ownership. The freehold to the property will be retained by the freeholder, who will retain the ultimate ownership and such other rights as are reserved by the lease.

In the residential context, the distinction is perhaps more widely understood in respect of leasehold flats, where the freeholder’s involvement in the upkeep of common parts, demanding service charges and collecting ground rents is more apparent.

Misconceptions in relation to leasehold houses, which have in some cases been marketed as “virtually freehold”, have been more prevalent, and associated problems, such as escalating ground rents, have made the headlines in recent times.

Buyers of leasehold premises should appreciate, amongst other matters, that:

  • the lease will set out the respective rights and obligations of the landlord and tenant;
  • tenants may have to pay maintenance fees, service charges and insurance premium contributions in respect of the premises;
  • rent may be reserved by the lease – in residential long-leases, this is typically in the form of an annual “ground rent”, and any rent review provisions should be reviewed carefully to ensure increases are not onerous;
  • in certain instances, the consent of the Landlord may be required – where, for example, the tenant wishes to undertake works to the premises;
  • it is possible for the Landlord to forfeit the lease in the event of breaches of tenant covenants by the tenant.

Legal advice should be procured at an early stage.

For assistance, please contact our property teams: