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May 3

Does Freehold Mean You Own The Land?

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Under the leasehold system in England and Wales, you might not own flat outright.

Lease terms for flats in England and Wales can extend up to an impressive 999 years. However, possessing a leasehold flat doesn’t equate to full ownership. Instead, it grants residency for a predetermined period, with ultimate ownership often resting with the freeholder, commonly referred to as the landlord.

Even in situations where residents collectively hold the freehold within a block, it’s typically administered by a dedicated company rather than individual owners. As a leaseholder or part-owner, you’re still bound by the terms and stipulations outlined in the lease agreement.

Critics frequently argue that the leasehold system, particularly in cases where leaseholders lack a direct stake in the freehold, is antiquated and impractical. Concerns surrounding exorbitant service charges and unscrupulous freeholders persist, driving demands for comprehensive reform.

Prominent figures within the government, such as Housing Secretary Michael Gove, have acknowledged the urgent need for change. However, unraveling centuries-old legal frameworks is a formidable task, necessitating careful and considered approaches to reform.

Despite the complexities involved, efforts towards modernization are underway, buoyed by initiatives like the free Leasehold Advisory Service, which aims to provide guidance and support to leaseholders navigating the intricacies of leasehold ownership.

 

How do freeholders make a profit?

Understanding the financial motivations behind freehold ownership sheds light on various benefits. Freeholders can generate income by extending leases, particularly when they approach the 80-year mark, ensuring the property remains attractive to potential buyers seeking mortgage eligibility.

Additionally, ground rents, though abolished for new properties, continue to provide a lucrative investment avenue in blocks where they are still applicable. Some leases incorporate automatic increases in ground rents, further incentivizing freehold retention and investment.

Moreover, freehold ownership affords control over property maintenance and services, including structural repairs, exterior upkeep, landscaping, and building insurance. While service charges enable freeholders to recoup these expenses, existing regulations, albeit undergoing reform, limit excessive profit margins. In cases where ground rents are minimal, the administrative burdens of freehold ownership may outweigh financial gains.

 

Can I buy the freehold of my flat?

When considering the prospect of acquiring the freehold within a block of leasehold properties, it’s essential to understand the mechanics involved. Should a sufficient number of leaseholders express interest in purchasing the freehold, a collective endeavor becomes viable, contingent upon the freeholder’s concurrence on a mutually agreeable valuation for the transfer.

However, this process is governed by strict regulations designed to ensure equitable treatment among all parties involved. It precludes any single leaseholder from unilaterally assuming control over the freehold. Instead, the transfer necessitates the establishment of a dedicated company specifically formed for this purpose. This company then becomes the legal owner of the freehold, with ownership shared among the participating leaseholders.

By pooling their resources and responsibilities, these co-owners effectively assume the role of managing and maintaining the block of properties. This entails overseeing various aspects of block management, including maintenance, repairs, and financial administration, previously handled by the original freeholder. Despite the transition in ownership structure, the fundamental duties and obligations associated with property management remain intact, albeit now distributed among the collective ownership entity.

 

Leasehold improvements

Leasehold arrangements, while often criticized, accommodate millions of residents in flats nationwide. Despite ongoing advocacy for the abolition and substitution with a commonhold system, reforms have resulted in fairer terms for new flat sales and enhanced legal protections for holders of older leases.

The evolving landscape of property management reflects a trend towards increased professionalism, with proposed regulations aimed at further enhancing standards and consolidating improvements in the industry.

 

How do I find out who my freeholder is?

If your lease doesn’t specify the freeholder or you haven’t received ground rent bills or service charge accounts with this information, it’s essential to identify your freeholder. Failure to do so could pose challenges when selling, modifying, or extending your lease. You can ascertain the registered freeholder’s identity through the Land Registry.

 

MORE Property blogs HERE: 

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Is Buy-to-Let Still Profitable Today?

A Comprehensive Guide to Buy-to-Let Mortgages

First-Time Buyer’s Guide to Buy-to-Let Mortgages

 


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Can I buy the freehold of my flat?, Does Freehold Mean You Own The Land?, How do freeholders make a profit?


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