What title – or bundle of legal rights – do you get when you buy real estate or property in England & Wales? How good are those rights and what benefits do they confer on you, your family and your successors?
The first thing to say is that the position as to property title is not the same in all parts of the UK.
This blog deals with the position in the largest part of the UK – England & Wales, some 151,149 sq km of the UK total of 243,305 sq km (source www.thecommonwealth.org)
Property is “land” or “land and buildings”.
1. Freehold and leasehold estates
There are two main types of property or “legal estates” in England & Wales: (1) freehold estate (2) leasehold estate; referred to commonly as “freehold” and “leasehold” respectively.
When you buy property, you will gain title to a freehold (normally if you buy a house) or a leasehold (normally if you buy an apartment, flat or maisonette).
2. Title to a freehold
Having title to a freehold, you and your legal successors can use and enjoy the property in perpetuity or forever.
Owning land on a freehold basis is therefore an extremely important and powerful right which can be enjoyed for hundreds of years by you and your future family or heirs.
3. Title to a leasehold
A leasehold is a lesser estate than a freehold.
A leasehold is created from a freehold when the owner of a freehold (the freeholder) grants someone else (a leaseholder) the right to enjoy that property, or a part of it, for a fixed number of years or term.
The leaseholder is granted “a lease” which sets out their rights and obligations, including any obligation to pay a ground rent or service charges.
A lease is typically for 99 or 125 years but one can be created for any term and a lease for 999 years is often referred to as a “virtual freehold”.
Leases typically apply in relation to flats or apartments where a building has been converted into several separate units or is purpose built to contain several units.
Having title to a leasehold, you and your legal successors can use and enjoy the property for the term of the lease – at the end of which the leased property reverts to the freeholder (or their successor).
Your right to enjoy a leasehold property is therefore limited in duration and governed by the terms of your lease, which is likely to be restrictive, and is therefore not as good or valuable as a freehold.
Where you are purchasing a flat, you will normally be offered a leasehold only.
Note the following for easy reference and understanding:
4. The advantages of freeholds compared to leaseholds
Freehold estates offer a much wider number of rights or benefits than leaseholds.
With title to a freehold, you and your lawful successors can:
- Use and enjoy the property for all time
- Grant leases out of the property
- Build on, change or convert the property as you wish, subject to the usual consents and permissions from the authorities.
With title to a leasehold, you and your lawful successors can:
- Use and enjoy the property for the length of the lease only
- Grant a lease out of the property (called “an underlease”) but usually only with the consent of the freeholder
- Build on, change or convert the property, subject to the usual consents and permissions from the authorities, but only if allowed by the lease and done with the permission of the freeholder – paying any charge or fee they impose.
STEPS INVOLVED IN BUYING
My first property (basic stuff new buyers must know)
Property buyer newbie (the main steps when buying a property)
Buying a flat – what to consider (key things to consider when buying a flat)
Stress free property purchase (how to make your purchase go smoothly)
New house no-no’s (things not to do when buying a new-build house or flat)
Buying a property abroad (what to watch out for when buying outside the UK)
5. Leasehold houses
Where you are buying a house, you will normally be offered a freehold, allowing use and enjoyment forever.
However, for at least a decade now, some developers have been breaching convention by selling newly built houses on a leasehold basis for their own commercial advantage.
Further, many of these leases have unfair clauses which can give rise to exorbitant ground rents, rendering the leases difficult to sell – and sometimes unmarketable. The government is committed to outlawing leases of this kind.
However, newly built houses are still being sold on a leasehold basis, especially on new estates in parts of London with complex land ownership.
You should seek legal advice prior to buying a house on a leasehold basis.
Have you or someone you know bought a house on a leasehold basis? Have there been any issues or problems? Your experiences may help others. Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com