In England and Wales, there are two main categories of property ownership: freehold and leasehold. Your legal rights and responsibilities over the property and its land are determined by whether you own the leasehold or freehold. In addition to this, there are further rights and restrictions in relation to freehold property depending on the type of freehold estate you own.
As such, it is important to understand the type of ownership you will acquire when buying a property as it affects all aspects of purchase and ownership; including property value, your rights and responsibilities, the purchasing process and how easily you can secure a mortgage.
What is freehold property?
Freehold property entitles the owner to legal title over the property itself and the land on which it sits (the estate). As a freehold property owner, you have full control of the estate and are fully responsible for its upkeep and maintenance.
What is leasehold property?
By comparison, leasehold property entitles the leaseholder to own the property for a fixed term. The leaseholder’s right to use and enjoy the property will come to an end once the period of the leasehold has expired. A leasehold does not, however, confer ownership rights to the leaseholder of the land on which the property stands. Land ownership is held by the freeholder, which could be an individual landlord or a company.
Different types of freehold property
Freehold estates can be further categorised into a further three types of estates; fee simple, fee tail and life estates. The creation of new fee tail estates is forbidden since the implementation of the Trusts of Land and Appointment of Trustees Act 1996. Therefore the most common types of freehold property are fee simple and life estate.
Fee simple, or fee simple in absolute possession, is an estate which if owned, entitles you to ownership of that estate perpetually. However, if you die intestate without any next of kin, ownership of the fee simple will revert to the crown.
You have absolute ownership of the estate and immediate rights of use and enjoyment. It is the greatest form of property ownership, granting the most freedoms in relation to the estate.
If you have the freehold to a life estate, this generally means that you own the freehold to an estate of land for the duration of a life alone, and do not own the estate outright. This can be your own life or the life of another depending on the circumstances.
You still have the right to sell your life estate; however if you have inherited the life estate for the duration of your life, the rights of the person purchasing your life estate will expire when your life ends, not when the purchaser dies.
Owning freehold property
When purchasing a property, you will need to confirm the type of ownership you will be acquiring, given the differences in rights and responsibilities that will result.
Having a freehold title means you have relatively unrestricted rights in relation to the property and how it is used. You also have complete responsibility for the property and the land it sits on, including its maintenance and repair.
You will be listed as the property owner on the Land Registry, and you have the power to decide whether to sell or rent the property or leave it to someone in a will.
Where the freehold is a life estate, this may be restricted depending upon whose life the estate is vested, as if the life in question is yours, your ownership of the estate expires upon your death and therefore cannot be inherited by another.
Owning either the fee simple or the life estate does not automatically entitle you to unrestricted use of the land as there may be other parties who have various legal rights against the estate.
Any rights in the property will be listed in the title deeds and can include covenants restricting you from using the land in a certain way and easements allowing others a right of access to your land.
What is a covenant?
A covenant on your freehold property dictates certain aspects of how the property is used. Covenants can either be restrictive or positive.
Restrictive covenants prohibit you from using the land in a particular way; such as utilising residential land for commercial purposes.
Positive covenants obligate you to take certain actions in relation to the land, such as covenanting to repair your fencing every 2 years.
It is important to distinguish whether there are any existing covenants on freehold property you intend to purchase as it can have a significant impact on your freedom to use the property.
What is an easement?
An easement is a legal right for another party to make use of your property. This is usually in the form of a right of access over the land such as a right of way, but this can also apply to things such as water pipes, electricity cables and gas pipes.
This can have a significant impact on how you can use your land, particularly in regards to extending property and other home improvements you might want to make. A change you make to your home that impedes an easement may be very costly for you to rectify.
Buying freehold property
The conveyancing process for buying or selling a freehold property should be relatively straightforward, as the process consists of transferring title from one owner to the other, and not the creation of any ongoing obligations to another party.
Mortgages for freehold property are usually readily available and easy to secure; however, this can depend on the type of property for which you are purchasing the freehold. For example, if you purchase the freehold in a flat, you may struggle to obtain a mortgage as some lenders are reluctant to borrow given the complexities of owning the freehold in part of a larger property.
Selling freehold property is also normally quite straightforward however where you are selling a life estate, the value of that estate is directly influenced by the age of those whose lives are vested in the estate.
Can I buy the freehold for a leasehold?
There are certain circumstances in which you may be able to purchase the freehold on your leasehold, which will then give you the rights and freedoms of a freehold property owner; however, these can be quite complex and difficult to obtain depending on the existing freeholder and the type of property.
For example, buying the freehold on a leasehold house should be pretty straightforward; however, if you are thinking of buying the freehold on a leasehold flat, this can become more complex, and you may still need to pay service charges etc.
If you are thinking about buying the freehold for a leasehold property, you should seek legal advice at your earliest opportunity to ascertain whether or not this is the best step forward.
Why legal advice helps
Buying property, or rights in a property is a significant financial investment and can have an impact on your plans with the property.
If you are buying a freehold, you will want to ensure you distinguish whether you are purchasing a fee simple or a life estate as this will dictate the degree of ownership and consequently your rights against the property. Seeking qualified legal advice as soon as possible before purchasing a home can help you to make the right decision for you both financially and for your future.