Do leaseholders have the right to buy the freehold?

What’s the difference between freehold and leasehold?

Around one in five homes in England is leasehold. Despite that, evidence suggests that many people purchasing a leasehold property do not fully understand the difference between freehold and leasehold.

So, put simply, if you are a freeholder, you own the building and the land it stands upon outright and in perpetuity. On the other hand, a leaseholder has a lease from the freeholder, entitling them to occupy the property for the number of years specified in the lease. Typically, new leases are for 99, 125 or 250 years. However, there’s no limit, and some leases are for as long as 999 years. But whatever its length, at the end of the lease term, all the leaseholder’s rights and interests in the property cease, and it reverts to the freeholder.

And when a leaseholder sells their property before the end of the lease term, the purchaser acquires the remainder of the term.

In addition, there are likely to be certain annual costs with leasehold property, possibly ground rent and service charges.

As long as certain conditions are met, you can extend your lease by:

• 90 years for a flat; or
• 50 years on a house.

Find out more about extending your lease.

And, subject to satisfying the criteria, you can purchase the freehold of your home.

Leasehold Reform (Ground Rent) Act 2022

Following an investigation by the Competition and Markets Authority, the Leasehold Reform (Ground Rent) Bill was introduced before parliament, receiving Royal Assent on 8^th February 2022. It will come into force in stages and aims to address unfair practices in the residential leasehold system. This follows a ban on the leasehold sale of most new-build single-dwelling houses, a practice that had become common with developers in recent years. In many cases, the ground rent on those properties is doubling every few years, resulting in them being unsaleable.

Find out more about buying the freehold of your leasehold house.

Is it worth buying the freehold of my leasehold property?

There are several potential advantages to buying the freehold of your leasehold property, including:

• You will no longer have to pay ground rent and service charges.
• You will not need permission from the freeholder to make changes to the property – for which they will also usually charge a fee.
• Leases contain restrictive covenants which can ban or restrict your ability to do certain things, such as running a business from home, sub-letting, or keeping pets.
• The fewer years left on the lease, the harder it will be to sell the property or obtain a mortgage. You may be able to pay to extend your lease term, but it will still be a lease.
• Perhaps the greatest disadvantage of being a leaseholder is that your freeholder may view you as a ‘cash cow’. We have mentioned above the scandal of leasehold houses. A freeholder – typically a developer – may also sell your freehold to a third party who may be even more exploitative of you.

What is collective enfranchisement?

Leasehold enfranchisement, which is also known as collective enfranchisement, is your statutory right as a flat owner to buy the freehold of your building, even if your freeholder objects. You must form a majority group of flat owners before collectively exercising your right to enfranchise. And in return for leasehold enfranchisement, you will also have to pay a fair price and a contribution towards your freeholder’s costs.

Find out more about collective enfranchisement.

What are the rights of enfranchisement?

As a flat owner, your right to enfranchise is contained in the Leasehold Reform Act 1993. It allows a majority group of tenants to become their own landlord, enabling them to grant themselves long leases of up to 999 years with no ground rent.

What are the benefits of leasehold enfranchisement?

Buying your freehold gives you and your fellow tenants control. It means:

• gaining ownership and taking over the running of the common areas.
• no more ground rent.
• choosing your service providers who may offer better value for money than those chosen by your freeholder.
• extending your lease to 999 years at no premium.
• increasing the value to your property and possibly making it easier to raise a mortgage.
• freeing yourself from restrictive covenants.