First of all, before you can understand who is responsible for what, you must first understand the difference between leasehold and freehold as they are two completely different forms of home ownership.
Leasehold vs Freehold: What’s the Difference?
Quite simply, the freehold owner (or freeholder) will have the exclusive ownership of the building and land. There is no time limit to the duration of ownership as the freeholder has outright ownership of the property and the land indefinitely. Whereas, the leaseholder has a lease from the freeholder (or the lease landlord) to use the home for a number of years.
What is Freehold? – Freehold Explained.
The freeholder has ownership in perpetuity so they have no one that they have to pay annual ground rent to ever. The vast majority of houses in the UK are freehold and it is the strongest form of land and property ownership. It is effectively ownership of a plot of land, rather than the building that’s built on the land, so it is your name that appears in the land registry as “freeholder”. So, adhering to local regulations of course, the freeholder is in a position to do whatever they wish on their land.
Freehold is obviously the preferred option with home buyers since it then becomes your place as soon as you buy it and if you live there you can do whatever you want.
What is Leasehold? – Leasehold Explained.
Leasehold is the most common type of flat ownership. The vast majority of flats in England and Wales are leasehold. Leaseholders effectively own the internal space of the property, everything within the external walls of the building from the floorboards to the ceiling, but not the plot of land on which the property stands. The leaseholder will own the property and certain rights to land for the length of the lease agreement, which will also define the responsibilities and obligations of both parties.
Leases are technically long-term tenancies that can be as short as 40 years, or as high as 999 years, but typically are around 100 years in length. It is extremely uncommon for a tenant to be evicted due to their lease expiring, as it would entail the leaseholder being completely oblivious for a number of decades. Leasehold owners are also able to extend their lease by an additional 90 years after the first two-year period of leasehold ownership. In the unlikely event of a lease expiring, the property would revert back to the freeholder to do with it what they wish.
Leasehold owners must pay an annual ground rent to the freeholder, and usually will also have to pay maintenance fees and an annual service charge, which may include their share of the building insurance. But charges and fees vary property to property, often depending on the freeholder’s preferences and priorities. Leaseholders may also have to obtain permission for any major work to be done to the property, as well as other restrictions which would be stated in the lease agreement such as pets or subletting. The lease can become forfeit if they fail to fulfill the terms and agreements of the lease.
If you buy a leasehold property, you take over the lease from the previous leasehold owners, meaning that you will have all the rights and responsibilities that incur with the purchase, such as the future payments of service charge. As you are taking over an existing lease, you will want to consider how many years are left on it, as the value of the lease depreciates with years. The shorter the lease the less it is worth, and you may even face difficulty in getting a mortgage on the property.
The Leaseholder or the Freeholder: Who’s Responsible?
The freeholder is responsible for maintaining the land and the fabric of the building such as the roof and external walls, as well as being responsible for issues concerning the property and the local council and community. For example, appearance, noise levels, etc. Freeholders are responsible for the building insurance to cover the bricks and mortar of the building, but they may share the cost of the building insurance with the leaseholder, including it into the service charges.
Freeholders can lease apartments to a leasehold landlord, but leasehold landlords will not be able to take out building insurance as only the freeholder can do this. The leasehold landlord however would be responsible for other forms of landlord insurance such as contents insurance, rent guarantee insurance (loss of rent), liability insurance and home emergency insurance.
Leaseholders have the right to know what the service charges are spent on and how these charges are calculated, as well as any paperwork or receipts in relation to the charges. This includes a summary of the building insurance policy taken out by the freeholder if the leaseholder is sharing the cost. The leaseholder has the right to challenge the cost if they think that it is unreasonable. This is a common dispute between freeholders and leaseholders, as leaseholders sometimes feel as if they are being taken advantage of and that the freeholder is actually overcharging them for the ground rent or service charges.
Other common disputes between freeholders and leaseholders can include:
- the freeholder not complying with the approved code of management practice.
- the leaseholder not maintaining the property to an acceptable standard.
- the leaseholder breaking the terms of the lease.
The legal rights and responsibilities of both parties should be in the contract or lease agreement between the leaseholder and the freeholder. Generally, the leaseholder is not responsible for maintaining or running the building, unless they have claimed “Right To Manage”. However, the leaseholder is responsible for any repair or maintenance carried out within the property.
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