Leasehold Properties 

Background 

The exact date the first leasehold estate appeared is also unknown, however it was introduced not long after the Domesday Book of 1089. This is a manuscript record of a “Great Survey” of England and Wales by the order of William the Conqueror. This was done to make note of the yearly value of every piece of land to its lord, resources in land, livestock and labor force.   

Leaseholder Rights and Obligations 

Owning a leasehold in most cases can be entirely different to owning a freehold. A leaseholder’s rights are more limited, their lease will only grant certain rights and responsibilities to the property but only for the term of the lease.  A leaseholder will have the legal right to exclusive possession and use of the property for the term of the lease, such rights are subject to terms and conditions contained in the lease. A leaseholder may also have the right to sub-let the property, however the freeholder’s consent may be needed for authorization. The lease terms may allow for small changes to be made to the property; however, any major additions or alterations may require the freeholder’s consent.  

Along with the limited rights, a leaseholder also covenants to take on several obligations relating to the property:  

• Payment of Ground Rent and Service Charge: Where necessary, a leaseholder must pay an annual ground rent and service charge to the freeholder for the entire lease term.  

• Maintenance of the Property: In many cases, the leaseholder is responsible for the internal upkeep of the property, however, externally the freeholder is usually responsible.  

• Adherence to the terms of the lease: A leaseholder has a legal obligation to abide to all restrictions and conditions of the lease. An example would be where the leaseholder requires major work to be done on the property, the leaseholder would need the freeholder’s consent.  

Benefits of a leasehold & why people choose it then disadvantages 

• One of the main benefits of a leasehold is the fact that it offers flexibility. Although the terms of a lease must be absolute when granted, the duration or length of the lease can be any duration. Flexibility allows both parties to meet their mutual needs. From the perspective of the landlord/freeholder, the person would enjoy the benefit of a steady income from the property and would still retain an interest should one want to sell the freehold estate separately from the leasehold interest.  

• Another benefit of a leasehold is the ease of enforcing positive or negative covenants to future successors to the title. Owning a freehold, the seller is not able to bind or compel the future successor to maintain or repair the land. In the case of leaseholds, almost all positive and negative covenants are enforceable on successors in title. This meets the needs of a landlord/freeholder as one can enforce repair covenants on specific units and where the leaseholder is concerned, one can ensure that common parts that are retained by the landlord/freeholder can be maintained as appropriate.  

• Most of the disadvantages to a leasehold are on the tenant’s side. Namely, a lease is granted only for a term, put simply, it will eventually expire. Should a leaseholder/tenant wish to extend the term, the person would need to approach the landlord for a renewal, which a freeholder/landlord may not be willing to give. This would then require the leaseholder/tenant to find a new home before freeholder/landlord assumes possession of the property.  

• Moreover, where a lease has capital value, it is effectively a wasting asset in the tenant/leaseholders’ hands. A choice will need to be made as to whether the freeholder/landlord wishes to incur additional costs to enhance the value of the asset or to dispose of the asset by way of a sale of the freehold. Another disadvantage of a leasehold can be where leases often impose a significant number of burdens on the tenant such as covenants to repair or an obligation to contribute towards maintenance costs of the building and restrictions on the leaseholder/tenant’s ability to deal with the property. This is intensified by legal remedies available for the freeholder/landlord to guarantee performance of the obligations. Additionally, rather dramatically the freeholder/landlord can ultimately bring the lease to an end by way of forfeiture. This remedy is usually applied in cases of a serious breach of the terms of the lease such as repeatedly missed rent payments, or a serious breach of the repair covenants contained in the lease.  

• A disadvantage from the freeholder/landlord’s position is in the grant of a lease rather than the sale of the property outright. The freeholder/landlord may also retain a few obligations relating to repairs and maintenance. Such an obligation must be set against the income received from the property rent and the covenants agreed by the tenant upon the signing of the lease.  

Current legislation 

Recently law makers introduced The Leasehold and Freehold Reform Act, which is now law but is yet to come into effect. There have also been minor amendments to the Building Safety Act 2022, which came into effect in July 2024. It could take months until the rest of the act is implemented as further consultation is needed, until then, the current leasehold laws still apply. Below is a brief outline of the changes as it relates to leaseholders: 

• The act will make it cheaper for some leaseholders to extend their lease or buy their freehold. The intended result behind his action is to empower leaseholders to pay less, however, in some matters this may not be the case. Therefore, individuals holding a short-term lease (less than 80 years) should find that their lease extensions are cheaper, when the material part of the act has been ratified into law.  

• The act will also increase for houses and flats a new standard lease extension term from 50 years in houses and 90 years in flats, to 990 years for both. This gives leaseholders/tenants the freedom and flexibility to a much more assured ownership without the inconvenience or costs of lease extensions. 

• Leaseholders will have greater transparency in relation to their service charge. The act will require freeholders or managing agents to issue bills in a standardized format, allowing a leaseholder/tenant to challenge the bill more easily. Additionally, the freeholder/landlord will be required to produce year end reports with details of planned major works.  

• By virtue of the act, it will also be easier and cheaper for leaseholders to take over management of their building, empowering them to appoint a managing agent of their choosing. The previous law allowed leaseholders to access the Right to Manage in buildings where a limit of 25% of the space was commercial, currently that limit has been increased to 50%. 

• It will also be cheaper for leaseholders to exercise their enfranchisement rights. This is the collective right to buy the freehold. Therefore, in many cases, leaseholders will no longer have to pay the freeholder’s costs when making a claim.  

• The act will also extend access to redress schemes for leaseholders, so they can challenge poor practice.  This scheme’s objective is to settle unresolved complaints from tenants/leaseholders who have suffered a loss due to the member/agent’s actions. Freeholders who directly manage their property will be required to belong to a redress scheme allowing leaseholders to challenge them as they wish. Additionally, private homeowners and estates with mixed tenure will be granted the benefit of extensive rights of redress. Therefore, they would have access to more information about the charges they pay and how reasonable they are.  

• The Leasehold and Freehold Reform Act will also make it much quicker for the sale or acquisition of a freehold by introducing a maximum time and fee for buying a home and selling information.  

• A new leaseholder will no longer have the requirement to have owned their house or flat for two years before extending their lease or buying the freehold.  

Leasehold and Commonhold Reform Bill  

By virtue of the King’s Speech on 17 July 2024, lawmakers promised draft legislation to end the archaic feudal system of a leasehold and rejuvenating commonhold.  

The draft will reportedly include:  

• Tackling the rise of unregulated and unaffordable ground rent prices, even where priced correctly.  

• The threat of forfeiture will also be removed in less egregious breaches like unpaid ground rent.  

• The draft will also restrict the sale of new leasehold flats by requiring commonhold to be the new default tenure. Commonhold is a form of ownership that allows for multiple-occupancy developments. Each individual therefore owns the freehold of their property and a resident’s association will own and manage the common parts of the property.  

To be a freeholder or leaseholder of a property relates only to the ownership title of the individual. Where discussing forms of property ownership, there are three primary types to consider: 

Sole ownership 

Rather straightforwardly, sole ownership is where a single individual owns the entire interest in an asset. Such ownership can also be transferred from one to another by sale or purchase agreement. 

Joint tenancy 

Simply put this is where one and another own joint shares in the property’s value. As each individual is entitled to an equal share in the property, all gains, capital and income must be split into 50/50. Should one person die, the property is then entirely owned by the surviving owner. 

Tenancy in Common 

This enables several individuals to have ownership in a property with equal or unequal shares. This is useful in matters where one individual is contributing more than another. Importantly the right of survivorship doesn’t apply in this situation, if one owner dies their share is left to a beneficiary specified in the will. Additionally, in these cases a deed of trust is drafted to articulate the particulars of ownership.