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#AskaUKPropertyExpert – Freehold, leasehold… What does this all mean?

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Q

Hi there, Please explain what the difference is between leasehold versus freehold property? I’d also like to understand if a freeholder is entitled to increase the service charge at free will – Mianka

A

Hi Mianka, thank you. I’ll start of by addressing the first half of your question.

A leasehold is where the investor owns the property but not the land upon which it is built. This is common for apartments in an apartment block, where there is more than one on a single piece of land. The Lease defines the terms and period of the leasehold arrangement with the freeholder (who owns the land the property is built on). Leaseholders pay ground rent, typically £250 per annum, to the freeholder to lease their land. The freeholder has no rights to the leaseholder’s apartment. The leaseholder has 100% ownership of their property and the title deeds registered at the deeds office.

The common lease periods are; 125, 250 or 999 years. The leaseholder can extend the lease period back to the original length with a nominal payment which is calculated using the Government agreed formula. The majority of leases that we work on can be increased at year 80 for around £2500 – £3000.

There may also be restrictions placed on what the leaseholder can do with the property, in terms of major renovations or owning animals. This is very similar to the conduct rules within South African complexes.

Whereas, if an investor owns a freehold it means they own the land on which the property is built. If a person purchases a house, they usually are sold with the freehold. A block of apartment is usually sold as leasehold with a freehold management company which takes care of the communal areas and upkeep of the gardens, lifts and gyms. It is very similar to the body corporate but an outside company will own and manage it. Property bought in Scotland is always on a freehold basis.

On to the second part of your question, It is good to remember that a service charge in the UK is what a levy is in South Africa. It is what freeholders charge leaseholders to recoup for their costs in servicing the building. This could be for building insurance, general repairs, and for the maintenance of lifts and communal areas.

Technically, the service charge can be increased or decreased without any limit, but the landlord can only recoup costs that are reasonable from the leaseholder. If the leaseholder feels any of the costs are unreasonable, they can go to the First-tier Tribunal.

The tribunal can consider whether a service charge is payable, and if so how much the investor must pay. It also presides over whether a building has been badly managed, and leaseholders can request that the tribunal appoints a different managing agent if that is the case.

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Who is Arran Kerkvliet?

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One Touch Property has been helping people invest in UK property for the past 8 years. Arran Kerkvliet, the investment director, is originally from South Africa and has a degree in Economics and property valuation. He is keen to share some of the common things to look out for before investing in UK property. His company sources a wide range of property including student accommodation investments, high yield property such as hotel rooms and buy-to-let investments for people looking for income producing investments and diversity to their property portfolio.

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