What are the differences between freehold and leasehold property?
When buying a new house, the Estate Agent should explain whether you are buying freehold property or leasehold property. If you are buying a freehold property you may hear the term “freehold and free”. But what does that actually mean?
Click here to read more about the differences between freehold and leasehold property
In the last 20 years, our team of solicitors and licensed conveyancers have helped around 10,000 people just like you move home – and around 10,000 people extend their leases or buy the freehold of their leasehold block.
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Are all houses freehold?
No – and it might surprise you to hear that approximately 670,000 of UK houses are held on a leasehold rather than freehold basis.
Historically, leasehold houses were perhaps most common in North West of England. As recently as 2018, records show that 27% of the houses in the region were owned on a leasehold basis.
But the issue has become more controversial recently with some of the big builders including Taylor Wimpey, Redrow and Persimmon, selling newly built houses as leasehold. And then they offer, a couple years later, the house owners to buy the freehold – at an additional price, of course! This has raised some considerable controversy and following the report of the Law Commission 2020, the government are considering taking strong action. However, industry insiders suggest that it is unlikely that there will be any change in the law before 2022 or 2023 at the earliest.
However some developers, such as Persimmon in June 2021, have tried to head off some of the controversy by significantly reducing the price they charge to convert from leasehold to freehold.
Click here to read more about Buying the Freehold of your Persimmon House
In fact, buying the freehold of a leasehold house is something very few conveyancing solicitors come across on a regular basis. That’s why you need a specialist – someone who deals with these kind of transactions on a regular basis.
As specialist lease extension and enfranchisement solicitors, our team deal with the purchase of the freehold of houses on a regular basis.
Click here to read more about purchasing the freehold of a house
So what are the constraints of a freehold house?
1. Rentcharges – the vast majority of people buying a freehold house will never have heard of rent charges. And they’re sometimes amazed to find out that they going to have to pay these regular charges – which are similar, though different, to the kind of service charges payable if you own a leasehold flat.
As a result, it’s really important that you should always check to see if there are any restrictions regarding the land that your house is built on. “Freehold and free” is a term that describes a house that does not have something called a rentcharge. A rentcharge is an annual fee payable by the owner of the house to a third party, usually the original builder (but can be someone else).
Rentcharges have been around for a couple of hundred years, and were a slightly underhand way for the original owner or builder of a property to continue to get money after they had sold it. A law passed by Parliament in 1977 meant that rentcharges could no longer be levied on newly built houses, with very few exceptions. The law also allowed freeholders to buy out their existing rentcharges.
Since the price of a rentcharge has not changed for several decades, the annual fee on a house may only be £10 (these kind of very low charges are usually referred to as “peppercorn rents”). For this reason a rentcharge usually has very little impact on the value of a house.
2. Restrictive covenants – even if your house is freehold, if there is a valid restrictive covenant, there will be limitations on what you can do with your own property.
Among the most common types of research covenants are the following:
- limits on carrying out a business from the property
- restriction on building or developing the property further
- restrictions on alterations to the property and in particular preventing any subdivision or conversion into a number of individual flats ( often referred to as title splitting)
3. Entries on the Land Registry
As at February,2022, there are now more than more than 26 million property titles registered at the land registry, and the level of registration continues to rise. That’s already over 87% of the land mass of England and Wales combined.
And there are 2 types of entry on the land registry which can indicate further restrictions on your ownership of freehold property; restrictions and notices.
When buying a freehold house, your conveyancing solicitor will explain any restrictions or notices and what they mean. But, in brief, they mean as follows:
A. Restrictions – this entry on the Proprietorship register of the title to a freehold does what it says on the tin. Effectively it stops any sale, transfer, gift or new mortgage of the property, being registered, unless certain conditions are met. A good example of a common restriction is that of “tenants in common” – whereby joint ownership prevents one party from making certain dispositions of the freehold without permission of the other.
Restrictions are therefore many different reasons, but they include protecting someone else’s share of a property, and protection of any debt or mortgage currently registered.
Click here to read more about the differences between tenants in common and joint tenancy
B. Notices – this an appears usually in the Charges Register and protects the position of a third party interest in the property
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