Buying Freehold

The majority of property on the market is freehold, and most buyers don’t even need to check.

However, more and more property management companies and developers are selling flats and other homes as leasehold properties.

It is important to understand the difference between freehold and leasehold properties, and what rights and responsibilities owning a freehold property gives to the buyer. In general, the majority of flats in the UK are leasehold, whereas most houses in the UK are freehold.

Freehold property means that the owner has complete and absolute ownership of the land, and all buildings that stand on the land.

The owner of the freehold property is therefore in a position to do what they wish to and with the property, in accordance with local planning regulations.

Freehold property is therefore generally more expensive than leasehold property.

Many homeowners in the UK live in leasehold property, but the possibility often exits to buy the freehold of the building you live in, either individually or in conjunction with other leaseholders.

Buying the freehold of a property

In order to purchase together, a group of leaseholders will need to meet certain requirements.

When a group of leaseholders purchase the freehold of a property, the process is generally known as collective enfranchisement. In this instance, the group of leaseholders may form a company to purchase the property as a nominee.

Rules regarding the purchase of a leasehold property are subject to the terms of a law called The Leasehold Reform Housing and Urban Development Act, 1993.

This act stipulates that a minimum of half of qualifying leaseholders have to participate in the scheme. Leaseholders usually qualify if they have owned their lease for two years and above.

Therefore, if you live in a building with two leasehold flats, both leaseholders need to participate in purchasing the freehold in order to apply.

How much does it cost to buy the freehold of a property?

Depending on how much lease is left on the property, the amount that it costs to purchase the freehold will vary considerably.

Landlords who are prepared to sell their leasehold must be compensated for the following value:

• Loss of value when leasehold reverts to freehold
• Loss of income from ground rents
• The marriage value of the property

The marriage value is the key part of the compensation owed to the owner of the property. Marriage value regards the potential for the property to increase in value between time purchased and the date the lease expires.

The Leasehold Reform Act stipulates that in the event of a leasehold being sold, this value should be split half and half between owner and purchaser.

However, if the length of unexpired time left on the lease is greater than eighty years, the marriage value is ignored under the act. The owner of the property may also make a case for development potential and money owed regarding this.

Chartered Surveyors specialise in determining the potential costs of buying a freehold. When you have purchased a freehold, you have complete ownership of the land and buildings.

Freehold provides the buyer with the right to do as they like with their home, subject to legal and planning controls.