Freehold vs Leasehold | NatWest

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Property tenure & lease extensions

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Add your signposting title here… What is property tenure?

Property tenure is one of the most important topics in housing, but there's a lot to get your head around. If you're a homeowner, or thinking about buying your own home in the future, it's important to become familiar with the fundamentals as it refers to the legal status and financial arrangements under which you can occupy a particular accommodation.

Essentially, property tenure means the type of ownership you have over a house or apartment.

Types of owned property tenure

Let's begin with the basics. Beneath property tenure are two terms that you've almost certainly heard of. Renting, also known as hiring or letting, is a contractual agreement where a payment is made for the temporary use of a property owned by another person for a set period of time. This includes the subcategories of private rented housing and social rented housing.

Homeownership, also known as owner-occupancy, is where a person holds the rights to a house or apartment, and includes homes owned outright as well as mortgaged. There are various types of tenure relating to homeownership, and we'll define these below.

Freehold

Freehold is the simplest form of property tenure, as it means that you are the outright and complete owner of the building and the land on which it stands. It's most often found in house purchases, but is occasionally used for apartments too. You have full ownership of freehold accommodation until you sell it, or someone else inherits it when you die. This means that you can do whatever you like with the property - so long as you adhere to planning regulations of course.

 

The downside to this type of tenure is that you are responsible for all the repairs and maintenance on the structure and the land too. 

Leasehold

Leasehold is a slightly more complicated term to define. They're generally found in flats and apartments, as if you buy a leasehold, someone else owns the building and the land on which it stands. That makes them the freeholder, and you the leaseholder, which gives you the right to own, occupy and use the accommodation for a specified period of time. You have to pay the freeholder to live at the property, and adhere to an agreement that might include a service charge for the upkeep of the building. At the end of your leasehold, the property is handed back to the freeholder.

 

There are long and short leases within this type of tenure and the length will determine the amount you have to pay the freeholder. They typically last for 99, 125 or 999 years, with a short leasehold similar to an extended rental agreement and a long leasehold of 999 years virtually ownership of the property. At the end of a 999-year lease, it's fair to say it's unlikely that the freeholder will still be alive. Besides, it's hard to predict if the building will still be standing that far in the future.

Commonhold

Commonhold is a relatively new type of tenure, first introduced in 2004, and it remains quite rare in the UK. It's a form of freehold for a property with multiple units, such as a block of flats of separate ownership, but which have communal areas such as hallways and stairwells. Commonhold is only applicable when there is not a fixed period of ownership. The unit owners are collectively known as a Commonhold Association, and they have shared responsibility to upkeep communal parts of the building.

Extending your lease

It's worth knowing that there are laws in place to help you extend your lease, should you wish to do so. During a short lease of 99 years, the property can be bought and sold but your term does not change. As the years roll on, the lease will reduce in length and value, making it decreasingly attractive to mortgage lenders. As a result, the shorter the lease gets, the more expensive it becomes to extend.

If your lease has less than 90 years left, it is time to consider extending, before you fall into what is known as the '80-year trap'. There are various ways to overcome this problem though, so don't panic if you do find yourself in this position.

If you've owned the property for at least two years, you're in luck. You've got a legal right to ask your freeholder for an extension of 90 years, so the first thing to do is to approach your landlord to discuss a new agreement.

If you've lived in the property for under two years, it gets a little more complicated. You can either persuade the freeholder to let you extend, or join the proceedings if the previous owner had already set about trying to get an extension. If neither option works, you'll have to wait until you've been there for the magic two-year period before you can set the ball rolling.

Another option is to buy a share of your freehold with your other neighbours, as when you do this, you can extend the lease at the same time - and often for free too.

There's lots of different costs at play here, so a solicitor can help you with a more in-depth valuation. As a guide though, costs can rise by 1% of the property's value, and there's also stamp duty, legal costs and valuation fees to consider. Most lenders will extend your mortgage to pay for a lease extension, but they'll want to make sure you can afford this.

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