It is possible to buy property in the UK as either:
A freehold means that you own the property as well as the land it is built on in perpetuity (it will never end). Traditionally, houses were sold as freehold, however more recently new houses are sometimes sold leasehold.
What are the advantages of being a freeholder?
Leasehold ownership is an agreement between the leaseholder and the owner of the property. The leaseholder does not own the land that the property is built on. Leases are granted for a set period of time (generally between 99 and 999 years), which decreases as time passes. The leaseholder has to pay a ground rent and a service charge. Therefore, subsequent sales of a house will be for shorter leases and this will decrease the value of the property. Leases with less than 80 years to run have various issues associated with them since it can be hard to obtain a mortgage and it can be very expensive to increase the term of the lease at this point.
Owning a freehold property means that the following apply:
Being a freeholder grants you a lot more freedom to do what you wish with a property, albeit with the following restrictions:
It is possible for flat owners to purchase a share of the freehold of the building that incorporates their flat. A group of leaseholders can group together to buy the freehold as a collective enfranchisement.
A tenant of a house can purchase the freehold using the formal or informal method. Whatever method is used, the transfer of title has to be legally recorded with the Land Registry.
The tenant can approach the owner of the house and ask them informally if they would sell them the freehold. This can be a quicker process but there is no guarantee and no right of redress at the First-Tier Tribunal under this method.
Except in certain cases, a qualifying tenant of a house has the formal right (called enfranchisement) to purchase the freehold under the Leasehold Reform Act 1967 so long as certain requirements are met, including:
The owner has two months to respond and either agree or to deny the proposal with reasons. If it is denied, then the freeholder can apply to the County Court.
The freehold interest has to be given a value as if it were to be sold on the open market. The purchase price is either determined between the parties or by the First-Tier Tribunal (Property Chamber) if the parties cannot agree.
The market value of a property will generally increase when it is no longer limited by a leasehold. This extra value is known as the marriage value and is split between the tenant and the owner, unless there is more than 80 years of the lease remaining.
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